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Polaris Industries Inc. (PII), Arctic Cat Inc (ACAT) & Harley-Davidson, Inc. (HOG): Getting Investment Ideas From Recreational Vehicles

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Sometimes you can find investment ideas by simply looking at what you or your neighbors use as recreational vehicles. Of course you need to research to find out whether the companies that make these vehicles generate cash for their owners or shareholders. You may enjoy a leisurely ride on an ATV or motorcycle. A recovering economy served as a catalyst for better fundamentals in the recreational vehicle industry. The three companies presented below sell these vehicles of fun and may prove worthy of your research attention.

Mini vehicles of every kind

Polaris Industries Inc. (NYSE:PII) makes various small recreational vehicles such as four wheelers, side by sides, snowmobiles, motorcycles, and with the recent acquisition of Aixam Mega S.A.S, it will now sell mini cars (quadricycles) and mini trucks. Moreover, Polaris also sells relevant garments and gear.

Polaris Industries Inc. (NYSE:PII)

Last year, Polaris Industries Inc. (NYSE:PII) increased revenue and free cash flow 21% and 44% respectively. Gross, operating, and profit margins increased 96, 174, and 116 basis points respectively. Polaris only paid out 32% of its free cash flow in dividends and currently pays out $1.68 per share for an annual yield of 1.8%.

Cash calculates to 60% of stockholder’s equity as of the end of last year. Polaris Industries Inc. (NYSE:PII)’ long-term debt to equity stood at 14%. Return on equity stood at an impressive 45%.

A great deal of opportunity awaits Polaris and its shareholders. Polaris Industries Inc. (NYSE:PII) plans to reintroduce the iconic Indian motorcycle brand later in 2013. The Aixam Mega S.A.S acquisition gives Polaris a foothold in the European markets that will allow it to capitalize on any economic rebound that may occur there.

More than just snowmobiles….

You may be interested to learn that Arctic Cat Inc (NASDAQ:ACAT) makes more than just snowmobiles. It makes ATVs and side by sides as well. In fact, ATVs and side by sides comprised 45% of Arctic Cat Inc (NASDAQ:ACAT)’s FY 2013 revenue. These two product lines also represented the highest growing segment, increasing 32% during that time. Snowmobiles by contrast only increased 5%.

Last year, Arctic Cat Inc (NASDAQ:ACAT) increased revenue 15%. Gross, operating and profit margins all increased 15, 120, and 80 basis points respectively. Free cash flow declined 81% due to increased capital expenditures and lower operating cash flow.

Arctic Cat Inc (NASDAQ:ACAT) possesses an excellent balance sheet with cash and investments comprising 65% of stockholder’s equity as of the end of last year. It possesses no long-term debt. Arctic Cat Inc (NASDAQ:ACAT)’s return on equity clocks in at 23%.

As macroeconomic conditions improve, Arctic Cat Inc (NASDAQ:ACAT) will benefit as people begin to spend more money on recreational vehicles such as ATVs, side by sides and the corresponding gear. If weather allows, people will buy more snowmobiles as well.

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