Marine Products Corp. (MPX, Financial), an Atlanta-based recreational boat manufacturer, showed up on my screen for companies with solid profitability metrics and high returns on invested capital that are trading at cheap price-earnings ratios.
The company's market cap of $299.93 million is higher than its enterprise value of $278.36 million, meaning it has net cash and no debt. Marine Products also has a very high financial strength rating of 10 out of 10, high profitability and good growth. Based on its price chart, it looks like the stock was a Covid-19 beneficiary, though it is now suffering from the post-pandemic bust and the current bear market.
Marine Products designs, manufactures and distributes fiberglass boats under the Chaparral and Robalo brands, including sterndrive boats, outboard boats and sport fishing boats. Spun off of RPC Inc. (RPC) in August 2000, the company sells its products through a network of 206 domestic and 92 international independent authorized dealers.
Financials
Marine Products' second-quarter 2022 results, which were announced in July, show strong performance, demand and backlog. The sales unit volume increased 15% compared to the prior year. The company operated throughout the three-month period, in contrast to the second quarter of 2021, when its manufacturing facility was briefly shut down because of raw material shortages.
Some of its supply chain issues have recently improved, but its production and timing of boat shipments continues to be impacted by sporadic and unpredictable shortages of critical components. The company's average selling prices increased by 22% due to price increases implemented to cover higher materials and components costs as well as model mix that has migrated toward larger boats in response to changes in demand.
The backlog of actual orders along with order indications from dealers remain at historic highs even as dealer inventories remain extremely low. The updated market share statistics for the 12 months ended March 31 indicate the combination of Robalo and Chaparral outboards in the 18 to 36-foot category had a market share of 6.1%. The Robalo brand held the third-highest market share in this category. Similarly, Chaparral held a market share of 19.7% in the 21 to 34-foot sterndrive category, which was the second-highest in this category.
In spite of the very good results, the forward-looking market appears to be forecasting a recession. This has impacted the stock price.
Since recreational boats are a discretionary purchase, it is logical to assume that with higher interest rates and reduced economic activity, sales may decline. However, there is reason to believe the market may have overreacted. As such, it may be a good time to keep an eye on the stock as we head into the downturn. While investors favor defensive stocks in slowing economic times, they really should be looking at cyclical names, too. Downturns eventually reverse course, so investors should be ready with a list of excellent cyclical names to go long on when the economy starts to turn.
Over the past 10 years (between 2011 and 2021), revenue per share has grown by 11.94% and earnings per share has increased at a compound annual growth rate of 16.79%. The company has a solid balance sheet and a great history of profitability. In fact, going back over 20 years, Marine Products was unprofitable only once (in 2010). The stock is currently priced for a recession. The dividend is excellent at 5.48% with a payout ratio of 0.51.
Conclusion
Several factors influence sales trends in the recreational boating industry, including general economic growth, consumer confidence, household incomes, the availability and cost of financing, weather, fuel prices, tax laws, demographics and consumers’ leisure time. Consumer demand began to increase significantly during the second quarter of 2020 as the Covid-19 pandemic encouraged American consumers to seek safe outdoor activities involving a limited number of people. Additionally, the value of residential and vacation real estate in coastal and recreational areas also impact sales.
The company operates in the outdoor recreational products industry and competes not only with other boat manufacturers, but other outdoor equipment like motorcycles, ATVs and motorhomes. As illustrated in the table below, Marine Products compares well with its broad competition.
| Exchange | Symbol | Company | Current Price | Market Cap ($M) | Enterprise Value ($M) | Revenue ($M) | Cash Flow from Operations | Free Cash Flow | PE Ratio | PB Ratio | PS Ratio | Price-to-Operating-Cash-Flow | Price-to-Free-Cash-Flow | EV-to-EBITDA | Price-to-Tangible-Book |
| NYSE | (MPX, Financial) | Marine Products Corp. | 8.77 | 298 | 274 | 325 | 11.51 | 10.01 | 9.16 | 2.76 | 0.90 | 25.39 | 29.13 | 6.41 | 2.87 |
| NAS | (MCFT, Financial) | MasterCraft Boat Holdings Inc. | 19.84 | 360 | 379 | 708 | 73.31 | 57.49 | 6.37 | 2.51 | 0.51 | 4.97 | 6.33 | 4.19 | 4.61 |
| NAS | (ONEW, Financial) | OneWater Marine Inc. | 30.13 | 427 | 1007 | 1628 | 68.35 | 54.61 | 3.29 | 1.17 | 0.25 | 6.43 | 8.17 | 4.62 | -1.91 |
| NYSE | (PII, Financial) | Polaris Inc. | 97.10 | 5789 | 7591 | 8150 | 41.10 | -267.50 | 22.60 | 5.38 | 0.73 | 149.77 | 0.00 | 9.47 | 37.78 |
| NYSE | (HOG, Financial) | Harley-Davidson Inc. | 35.18 | 5141 | 10808 | 5346 | 575.59 | 437.96 | 8.58 | 2.06 | 1.00 | 9.38 | 12.31 | 11.19 | 2.11 |
| NYSE | (BC, Financial) | Brunswick Corp. | 67.36 | 5019 | 7037 | 6390 | 379.50 | 26.20 | 8.47 | 2.50 | 0.82 | 13.65 | 181.42 | 6.74 | |
| TSX | (TSX:DOO, Financial) | BRP Inc. | 85.84 | 4929 | 6684 | 5960 | 442.10 | -243.30 | 10.18 | 1073.00 | 0.86 | 15.93 | 0.00 | 6.96 | -13.29 |
| NYSE | (THO, Financial) | Thor Industries Inc. | 74.27 | 3987 | 5345 | 16313 | 990.25 | 747.90 | 3.60 | 1.10 | 0.25 | 4.13 | 5.45 | 2.96 | 5.94 |
| NYSE | (LCII, Financial) | LCI Industries Inc. | 97.76 | 2486 | 3710 | 5559 | 212.54 | 85.17 | 5.02 | 1.79 | 0.45 | 11.70 | 29.13 | 4.61 | 7.61 |
| NYSE | (WGO, Financial) | Winnebago Industries Inc. | 55.15 | 1748 | 2086 | 4815 | 334.57 | 250.05 | 4.75 | 1.39 | 0.38 | 5.51 | 7.33 | 3.45 | 5.79 |
The company is a play on the increasing income gap. Recreational boats like what Marine Products makes are usually bought by the top 20% of net worth and income earners. This group, largely consisting of business owners and professionals, is only mildly affected by a recession given their wealth. The growth of the top quintile of income earners has been good for the pleasure boat business.
Mr. Market has sold down the stock to a level as if we were already in a deep recession. Given that we are still at full employment, chances are good that the recession will not be as severe as Mr. Market anticipates and the company will bounce back quickly.
Moreover, Marine Products has a pristine balance sheet, giving it lots of operational flexibility. While sales will likely decline from the peak this year, there is enough evidence that the pandemic has caused many more people to adopt a recreational lifestyle that will endure and increase in the years to come. Meanwhile, the company's 5.5% dividend should keep investors happy.
