Thor Industries Inc. (THO, Financial) designs, manufactures and sells a range of recreational vehicles and related parts and accessories primarily in the U.S. and Canada. Shares of the company have jumped more than 3.5% on Monday's trading after reporting better-than-expected earnings for its first quarter of fiscal 2016.
Q1 results
EPS increased by 33% to 97 cents per share, compared to 73 cents per share in the same period the year before. Revenue rose 11.7% year-over-year to $1.03 billion, beating the prior sales number of $922 million.
Thor reported a gross profit margin of 14.8% in the quarter compared to 12.8% in the same quarter a year ago. According to the company, this was the result of changes in product mix and improvements in material, labor and warranty costs relative to the higher levels of labor and warranty costs in early fiscal 2015. Moreover, the operating margin has been expanding over the past five years.
Two other positive aspects of this company are its high dividend yield, which is close to a three-year high, and the P/S ratio, which is close to the two-year low of 0.69x.
Stock price performance
The company is selling at a premium. The P/E ratio as of Dec. 1 is 16.54x, which is higher than the industry median of 15.87x. The stock is trading near its 52-week high and it has surged 10.7% on a year-to-date basis and almost 7% in the past 12 months.
Looking forward
The company has a market capitalization of $3 billion with nearly $180 million of cash and no debt on the balance sheet. Analysts estimate five-year forward earnings growth of 7% per annum.
We can anticipate a rising interest rate environment, which would increase borrowing costs and may hurt sales. Competition is another issue; Winnebago Industries (WGO, Financial), Drew Industries (DW, Financial) and River Forrest (owned by Berkshire Hathaway (BRK.B, Financial)) are strong players, too.
Final comment
Thor Industries might be a good candidate for long-term portfolios because a debt-free balance sheet is always attractive, and mitigates some of the cyclicality issues in the current environment. Further, its EPS growth and cash flow generation make me feel bullish on this stock.
Gurus such as Jeremy Grantham (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) have initiated new positions in the stock.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
