Is This Company the Best One to Take a Ride With in the RV Industry?

The proof of the pudding is in the eating. The ultimate test of shareholder value creation is still share price appreciation. In this regards, Patrick Industries stands out among its peers.

May 28, 2014 at 2:04PM
Patrick

Source: Patrick Industries

Patrick Industries (NASDAQ:PATK), a national manufacturer and distributor of a wide variety of building and component products for the recreational vehicle (RV) industry, has outshone its peers in the past few years. A dollar invested in a customized group of eight listed peers in 2008, including companies like Thor Industries (NYSE:THO) and Drew Industries (NYSE:DW), would have made the investor $7.50 by the end of 2013. In contrast, the same dollar invested in Patrick industries would have returned $45 to that investor over the same period.

Industry growth
Following the 58% decline in RV wholesale unit shipments from about 391,000 in 2006 to 166,000 in 2009, the RV industry is now seeing clearer skies. RV wholesale unit shipments have recovered strongly to almost double to 321,000 units in 2013, with expectations of a 6% year-on-year growth in 2014.

More than 9 million Americans are currently RV owners, with RVs gaining acceptance as a mainstream option for vacation travel and other leisure activities. Looking ahead, with more aging baby boomers near retirement age, RV ownership should grow further, as most people buy their first RV at a later age.

However, this doesn't fully explain Patrick Industries' outperformance relative to its peers. 

New products
In addition to adding more customers, selling more items to each customer is another way to drive revenue growth. In 2013, Patrick Industries launched 60 new products. Examples include new styles of interior passage doors, an expanded range of cabinet door styles, and new variations with respect to colors, patterns, and wood types for panels and mouldings.

Apart from leveraging on acquisitions to expand its product range, Patrick Industries also worked on upgrading its manufacturing and distribution capabilities. Firstly, it bought over a previously leased distribution facility in 2013 to expand its inventory holding capacity. Secondly, Patrick Industries also upgraded some of its existing manufacturing equipment to enhance production efficiency last year.

It's possible to draw parallels with Drew Industries, a supplier of chassis and certain RV components to Thor Industries. Similar to Parick Industries, Drew Industries has a strategy of becoming a more extensive supplier to its customers, by pushing an increased range of products through to its customer base.

For example, it developed a new line of RV awnings, whose market value is estimated at $175 million. This year, Drew Industries added electronic control systems, encompassing a wide variety of RV applications, to its product portfolio. It estimates that the market potential for electronic control systems is approximately $50 million. While Drew Industries' average content per new towable RV increased modestly from $2,690 in 2012 to $2,716 in 2013, it estimates that it can reach the approximately $5,000 per Towable RV mark, if it were to win 100% market share in its existing product markets.

An illustration of the success of Patrick Industries increased sell-through efforts to customers, it increased its RV content per unit by an impressive 27% from 1,048 in 2012 to $1,338 in 2013.

Customer

Source: Patrick Industries

Growth via M&A
From 2010 to 2013, Patrick Industries has gone on an acquisition spree. It bought 12 companies for a total of $60 million, which contributed approximately $170 million in annualized sales. Notable acquisitions during this period included Middlebury Hardwood Products, a manufacturer of hardwood cabinet doors and other hardwood products; West Side Furniture, a distributor of recliners, mattresses, other furniture products; and A.I.A. Countertops, which manufactures solid surface countertops.

This series of acquisitions is in line with Patrick Industries' strategy of adding new and innovative product lines that complement its core competencies via M&A. This will allow Patrick Industries to increase dollar sales contribution from customers, by cross-selling its growing product portfolio to its existing customers.

While Thor Industries is the largest RV manufacturer in the world with a 32.9% global market share, it hasn't given up on growing bigger. In the past 12 months, it has completed three notable acquisitions. The first acquisition was RV manufacturer Livin' Lite in August 2013, whose aluminum ultra light campers complement Thor Industries' current product portfolio.

In October 2013, Thor Industries purchased net assets of specialty trailer manufacturer Bison Coach, a market leader in equine living quarter trailers. In addition to expanding its product range, Thor Industries is also interested in growing its distribution network. In April 2014, Thor Industries acquired RV manufacturer K-Z to gain access to its distribution network of 220 North American dealers, which shares limited overlap with Thor Industries' existing dealer base.

Given Thor Industries' size, most acquisitions are a drop in the ocean for it. As a result, M&A have a relatively more limited impact on Thor Industries' growth prospects, relative to that of Patrick Industries.

Foolish final thoughts
In the past five years, Patrick Industries has outperformed its peers with its focus on M&A and new products. Its financial performance in the most recent quarter suggests its growth momentum is still intact. In the first quarter of 2014, Patrick Industries grew its quarterly revenues and operating income by 27% and 13% respectively. Patrick Industries is one of the best proxies for the continued growth of the RV industry, given its track record of successful acquisitions and new product launches.

Will this stock be your next multi-bagger?
Patrick Industries was a 45-bagger for those investors who bought in 2008. Going forward, its growth prospects are equally promising, as it continues to grow via new product introductions and M&A activities. Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Drew Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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