Founded in 1945, Minnesota-based Polaris, Inc. has grown to employ over 18,000 people, bringing in an annual revenue of nearly $9 billion. The company manufactures on-road, off-road, and marine powersports vehicles, including all-terrain vehicles, side-by-side vehicles, military and commercial off-road vehicles, snowmobiles, motorcycles, boats, and more. The company also provides accessories for off-road vehicles, such as winches, plows, racks, and more.
Since 2013 the company has increased its revenue from $3.7 billion to $8.9 billion, a compound annual growth rate of 9%. Its equity has almost tripled, from $535 million to $1.4 billion. Over the past five years earnings have increased at an average annual rate of 8.4%, while EPS has clocked in a 10.4% annual growth rate.
With a P/E of only 11 and earnings projected to grow 15% per year in the coming years, it looks like a steal.
But net margins and their corresponding earnings over the past decade are ringing alarm bells. In 2023 the company earned a 10% profit on its $3.77 billion in revenue, bringing in $377 million. The next year saw an 18% increase in revenue and a 20% increase in profit, as margins improved even more.
But in the years that followed net margin sank to under 2% in 2020, as the company's $7 billion in revenue only added $125 million to the bottom line. One might wonder if 2020 could be dismissed as a Covid-related aberration, and indeed, margins did improve in the years that followed. By 2023 they had improved to 5.6%. Still, it's far below the 10% the decade started with, and the $502 million it ended 2023 with represents a mere 2.9% annual growth rate since 2013. The median company grows 6.5% per year -- we can't make above-average gains buying below-average companies. I won't be adding Polaris to the P13 Portfolio.
But that doesn't mean we're going away empty-handed. Headquartered in Connecticut, Photronics, Inc (PLAB) was founded in 1969 and has grown to employ almost 2000 people. The company creates photomasks that are used in the manufacture of integrated circuits and flat panel displays.
The company's revenue has more than doubled since 2013, increasing at an annual pace of 7.8%. Profit margins have more than tripled, from 4% to 14%, allowing earnings to skyrocket 7-fold -- an annualized rate of 21%, with EPS following in lock step.
Over the last five years the company has ramped up growth: revenue has been rising almost 11% per year, earnings 24%, and EPS 27%. With a P/E of only 12 and growth projected at 10%, it's no wonder Yahoo Finance is projecting a 76% return with this one. I will be adding this to the P13 Portfolio.
DISCLOSURE: I do not currently own the stock indicated but I plan to buy some within 24 hours. This is not a recommendation to buy; do your own research, and plan any stock purchases with the help of a financial advisor and an eye towards your appetite for risk and your own unique financial circumstances.
Bought 28 shares of PLAB FOR $28.40 ON 4/8/24. Limit Sell at $34.08
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