RVs on the Move
08/19/2015 9:00 am EST
On a seasonally adjusted basis, the annualized rate through the first half of the year was the best for RV sales since 2006, so Matt McCall, of Penn Financial Group, highlights several ways to play the trend of an increase in RV sales in the coming years.
One key to successful long-term investing is to identify the trends that will deliver above-average growth over the next few years. Once that is determined, the next step is to choose the companies that can benefit from such growth.
According to TechNavio, unit sales of recreational vehicles (RV) in North America are expected to grow at an annual compound growth rate of 8.35% from 2014-2019. On a seasonally adjusted basis, the annualized rate through the first half of the year was the best for RV sales since 2006, according to the RV Industry Association.
There are a few ways to play the trend of an increase in RV sales in the coming years. The obvious choice would be to focus on the two major manufacturers of recreational vehicles and manufactured homes (MH). The two largest publicly traded companies that concentrate on the space are Thor Industries (THO) and Winnebago Industries (WGO). Both stocks are attractive at current levels with PEG ratios below 1.0.
However, there is also a secondary play on RVs and MHs, Patrick Industries (PATK).
PATK is the leading manufacturer of building products for the RV and MH industries in the US. The company supplies products that range from vinyl panels to fiberglass bath fixtures to kitchen cabinets. Last quarter the company generated 75% of its sales from the RV segment and 14% from the MH industry. Net sales for the quarter increased by 24.3% from last year and net income surged by 30.8%.
For the full year, the company is expected to earn $2.43 per share, which would result in an increase of 27% from 2014. The growth is expected to continue with earnings per share estimates at $2.90 for 2016. The stock trades with a forward P/E ratio of 13.5 and a PEG ratio of 1.03, both well below the market average.
In the last four years the small-cap stock has risen over 3,000%. The meteoric rise does not suggest there is limited upside potential for the stock in the years ahead. Technically, the stock has been consolidating during a healthy pullback since March and recently bounced off its 200-day moving average, creating a new buying opportunity.
What makes PATK such an exciting opportunity is that even though it has gained over 3,000% in the last few years, it is still undiscovered by Wall Street. Once the big analysts find out about the growth potential in the company they will start to pile into the stock.
PATK is just another example of a stock flying under the radar.
Matt McCall, Founder and President, Penn Financial Group