One of the things that I had impressed on me as a child that I have also tried to impress on my children is that when something looks too good to be true, it usually is. It’s not that I want them to go into the world as being overly suspicious, it’s just that having some healthy cynicism can help prevent some avoidable mistakes. That carries into trading and investing, where I frequently preach that if a price looks "wrong," it is far more likely that you have missed something than the entire rest of the market.
That said, though, there are times when a stock just looks cheap by every metric, after earnings that were released this morning, Thor Industries (THO) is one of those stocks.
As you can see, THO has done okay in places over the last year, including a strong run up when it nearly doubled from October to March. However, a recent pullback had, before this morning’s news, seen it post a 1-year gain of 5.7% versus a gain in the S&P 500 of more than 30% in the same period. That might make sense if Thor had disappointed in some way, but all through that time they have consistently beaten expectations for earnings and did so again this morning. They reported Earnings per Share (EPS) of $3.29, a resounding beat of the $2.34 consensus estimate, on revenue of $3.46 billion, also significantly higher than the $3.01 billion estimate.
If you are not familiar with Thor, they are a maker and seller of RVs, but not just the giant motor homes that many people think. They also make what are known as “Class B” motor homes, which are basically converted vans, and which come at a much more affordable price. After shutting down operations for a couple of months last year due to the pandemic, they have recently been a beneficiary of demand from consumer looking for a way of taking a self-contained, covid-safe vacation.
The weakness in the stock seems to be because of a feeling that that demand boost has been squeezed into a short time by a kind of concertina effect, with delayed demand after the closure coinciding with sales being pulled forward from future years as post-covid relief sweeps consumers. Thor’s management, however, see no evidence of that. Following the release, Bob Martin, President and CEO of Thor, said they “"intend to continue to increase production levels to address the ongoing, robust consumer and dealer demand for THOR Industries RV products."
The question is whether you believe that Martin, who has his finger on the pulse like nobody else, is right or not.
If you think he is, as I am inclined to do, the stock is incredible value. At last night’s close, every value metric was screaming "buy!" Trailing and forward P/Es of 16.8 and 12.7, respectively, are way below average in this market despite solid growth, and the stock was trading at just 0.7 times current sales.
Getting a bargain on a stock that is in a major period of growth and making money too looks too good to be true but, in this case, it really isn’t. It is just that the views of the market and of the company’s management differ as to how long the boom can last. Given that supply chain issues common to auto manufacturers of all types have resulted in inventory depletion at dealerships that may take years to fully correct, Martin’s assertion this morning that they have an order backlog well into 2022 seems reasonable, and this a case where suspending your healthy cynicism will probably prove to be a smart thing to do.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.