Polaris (PII): Buy, Sell, or Hold Post Q1 Earnings?

Polaris has gotten torched over the last six months - since November 2024, its stock price has dropped 43.2% to $38.32 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Polaris, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Polaris Will Underperform?

Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than PII and a stock we'd rather own.

1. Long-Term Revenue Growth Flatter Than a Pancake

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Polaris struggled to consistently increase demand as its $7.07 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Polaris, its EPS declined by 17.2% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Polaris’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Polaris, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 25.3× forward P/E (or $38.32 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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