Foolish Forecast: Drew Draws

Happy days are here again on Monday. One of the most successful Hidden Gems picks to date, RV and manufactured-homes (MH) parts supplier Drew Industries (NYSE: DW  ) will be back on Wall Street reporting earnings for fiscal Q1 2006, some time after close of market. Here's what you need to know to put next week's news in context.

What analysts say:

• Buy, sell, or waffle? Three analysts follow Drew, with buys outnumbering holds 2-to-1.
• Revenues. Analysts believe Drew's sales grew 21% year over year, to $186.5 million.
• Earnings. They also expect profits to increase 21%, to $0.41 per share.

What management says:
In February, Drew gave an investor presentation, submitting its slides for public review through an SEC filing. Investors interested in the company should read through the presentation for the wealth of company information it contains. Picking just one fact more or less at random, here's something to keep in mind when considering how this company might grow.

Drew aims to increase sales and profitability in three ways:

• Market-share growth
• New product introductions
• Strategic acquisitions

So what? Doesn't everybody do that? Still, notice what's missing from that list: any indication that Drew expects the market for RVs and MHs to grow on its own. This jibes with the charts of RV and MH production over the past several years, included in the presentation. They show that RV shipments have been rising at about 6% per year over the last 10 years, while MH production has declined at close to 10% per year.

The key to Drew's success will be its ability to innovate and "create" new markets in an generally stagnant field, and to steal or buy competitors' market share. If I'm reading correctly between the lines here, Drew is saying that the market for RV and MH is a zero-sum game, where only the strong will survive.

What management does:
Over the last five years, sticking to the above three-part plan has helped Drew grow its earnings at a compound rate of 29% per year.

One Fool says:
Although the analysts following Drew concur that its growth rate will drop down to 18% over the next five years, that's still much faster growth than what's forecast for the market as a whole. (The S&P 500 is predicted to grow at less than 11%.) Sure, Drew trades at a rich P/E of more than 23, while the S&P 500 is valued closer to 19 times trailing earnings. Is it worth paying a 25% price premium to capture 70% faster growth? I vote yes.

Competitors	Customers
Dura Automotive (Nasdaq: DRRA  )	Cavalier (AMEX: CAV  )
	Champion (NYSE: CHB  )
	BerkshireHathaway (NYSE: BRK-A  )
	Fleetwoood (NYSE: FLE  )
	Skyline (NYSE: SKY  )
	Thor (NYSE: THO  )

Fool contributorRich Smithdoes not own shares of any company named above.