Shareholders of Polaris would probably like to forget the past six months even happened. The stock dropped 49.3% and now trades at $41.90. This might have investors contemplating their next move.
Is there a buying opportunity in Polaris, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Even though the stock has become cheaper, we don't have much confidence in Polaris. Here are three reasons why you should be careful with PII and a stock we'd rather own.
Why Do We Think Polaris Will Underperform?
Founded in 1954, Polaris (NYSE: PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Polaris’s 1.2% annualized revenue growth over the last five years was weak. This was below our standards. 
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 12.4% annually over the last five years while its revenue grew by 1.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Over the last few years, Polaris’s ROIC has unfortunately decreased significantly. 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 see the value of companies helping consumers, but in the case of Polaris, we’re out. Following the recent decline, the stock trades at 14× forward price-to-earnings (or $41.90 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. We’d recommend looking at the most entrenched endpoint security platform on the market.
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