Enterprise Value = $5.048 billion
Operating Income = $684.85 million
EV/Operating Income = 7.37x
Price/Revenue = .6x
Earnings Yield = 9%
Debt/Equity = .04%
Thor Industries, Inc. makes and sells recreational vehicles. They operate two principal segments: towable recreational vehicles and motorized ones. Business has been excellent in recent years due to twin demographic trends. To sum it up: Millennials are living in RV’s and taking wake-up selfies next to the Grand Canyon, while Boomers are retiring and using them for vacations. Cheap oil has also buoyed the expansion.
While the company has been consistently growing sales and earnings at a rapid rate for every year of the expansion, it currently trades at a 66% discount from its 52-week high set back in February. 2017 was the company’s best year in its history and investors are concerned they won’t be able to keep up the pace. The stock sold off because of fears over the Trump administration’s steel and aluminum tariffs.
Thor is not the kind of company that I usually buy. It is a fast-growing, well-performing firm. It certainly looks like a “wonderful company at a bargain price.” Thor is performing significantly better than most companies trading at a P/E of 11, EV/OpIncome of 7.37x and 60% of sales. It’s average P/E for the last five years was 16.62, which seems reasonable for its quality. Multiple expansion alone to its average level would fuel a 51% rise in price from current levels.
Thor is also outperforming its competitors in the RV industry. For the last ten years, it has maintained a 16.69% rate of growth in comparison to 9.41% for the industry as a whole and 12.25% in comparison to its biggest competitor (Winnebago). It is also achieving these results with less leverage. Thor has a low debt/equity ratio of .04%. Winnebago, in comparison, has a debt/equity ratio of 50%.
Sales have organically grown with every year in this expansion, and they appear to be increasing. Sales have increased by 123% from 2013. Earnings are up 147% over the same period. With an F-score of 7 and a Z-score of 7.98, the company is financially healthy.
One risk is that we have a recession, as that would trigger a contraction in credit availability for RV purchases. Of course, a recession is a risk for everything that I own.
Another risk factor is that the RV industry might be at a cyclical peak. 2017 was the best year for the RV industry in history, with $20 billion in sales and 504,600 units sold. Despite this, I think that the industry still has a lot of room to grow in popularity. I think it will have a continued appeal for families, Millennials who want to unplug, and Boomers who are retiring.
According to the RV industry association (I know, they have a bit of a bias), RV camping trips are much cheaper than the typical family vacation. Family RV trips are probably much more pleasant, too. Everyone hates flying, but I’m sure that flying with your kids in tow is a particularly miserable experience. So, this ought to have an appeal to families. Boomers continue to retire and they should continue to drive the growth of the industry.
The recent sell-off looks like a severe overreaction to some bad macroeconomic news with little regard to the actual performance of the underlying company. While tariffs are a problem, I don’t think they can derail this exceptional business that is being buoyed by a favorable business climate in the United States and current demographic trends.
Speaking of RV’s, I can’t talk about them without thinking of this video:
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