This Company Might Have Another ACE in the Hole

Polaris (NYSE: PII  ) once again proved itself to be an innovator when the leading manufacturer of off-road vehicles announced the new Sportsman ACE. The ACE off-road vehicle features a sit-in chaise which combines the handling of a Sportsman all-terrain vehicle, or ATV, with the comfort of an RZR side-by-side. While the new vehicle comes as a big announcement, evidence shows that Polaris has more innovation on the way that could separate it from competitors like Arctic Cat (NASDAQ: ACAT  ) .

ACEs high
The Sportsman ACE's features include 10.25 inches of ground clearance and twin tube shocks which give the vehicle smooth riding suspension, a 32-horsepower ProStar electronic fuel-injected engine that matches the output of a Sportsman 500 ATV,  and a ROPS cab frame which appears on side-by-sides to improve safety. These and other specs combine to make the ACE a fun, secure off-road vehicle.

Polaris hopes that the Sportsman ACE's combination of handling, power, and comfort will draw consumers new to off-roading.

"In creating the Sportsman ACE, we wanted to not only appeal to current off-road enthusiasts, but develop a vehicle that brings new customers to off-road recreation," said vice president David Longren, "We accomplished this by coupling an easy-to-use, nimble platform with a confident and secure ride that, together, provides drivers of all experience levels a new way to experience the outdoors."

Once newbies get hooked, they can progress to other products in Polaris's successful off-road vehicle, or ORV, business. During its third quarter of 2013, the company posted a 12% revenue increase for ORVs driven by double-digit growth from the RANGER, RZR, and ATV divisions. According to COO Bennett Morgan, this marked the 17th consecutive quarter that Polaris side-by-sides and ATVs gained market share.

The Sportsman ACE offers an exciting and secure experience for consumers new to off-roading and could help drive revenue for Polaris, but the company also shows more signs of innovation.

Future possibilities
Polaris has been consistently increasing its research and development budget:

PII Research and Development Expense (Quarterly) Chart

PII Research and Development Expense (Quarterly) data by YCharts

Polaris reinvests 4% of its yearly revenue into R&D. This ensures that Polaris' R&D will grow proportionately with its revenue and explains why Polaris' R&D expenses increased at a higher pace than that of Arctic Cat. Increasing R&D expenses indicate that management is focusing on the company's long-term growth which is good for Foolish investors.

Consistent R&D investment makes it possible for Polaris to create new off-road vehicles like the Sportsman ACE as well as products for divisions like the fast-growing parts, garments, and accessories division or the historic Indian motorcycle brand. Polaris launched Indian motorcycles in 2013, and it is challenging Harley-Davidson (NYSE: HOG  ) in the heavyweight motorcycle division.

During 2013, Harley-Davidson released new Project Rushmore and Street bikes, showing that it wasn't going to let Polaris take its market share easily. Project Rushmore gives Harley's luxury tourers a series of upgrades, including more power and better breaking.  Street motorcycles are aimed toward younger, urban riders and are smaller and more nimble than other bikes.  These launches helped the company maintain a 54.9% market share of heavyweight motorcycles.   Challenging Harley is no easy task, but I think Polaris will continue to put plenty of R&D into producing motorcycles that capture the attention of the motorcycle community.

Polaris's secret to success
In a recent interview with Investor's Business Daily, Polaris CEO Scott Wine said that one of the company's secrets to success was, "bringing many new people into the industry." The Sportsman ACE plays into this strategy by offering a unique, easy riding experience for anyone new to off-roading. As the company continues to invest in R&D I'd expect it to continue to create innovative products for its on-road vehicle, off-road vehicle, and motorcycle businesses. 

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