Polaris Industries Inc. (NYSE:PII) has been up and down over the past few years as manufacturing flaws and product design challenges have eaten into the company's financials. But the third quarter showed some signs of light and began pushing shares higher

Will 2018 be the company's best year yet? That may be a high bar, but anything better than 2016 and 2017 would be progress for investors. Let's take a look at whether next year is likely to deliver. 

Off-road vehicle on a mountain road, with a man driving and a woman riding on back.

Image source: Getty Images.

A recovery is here... maybe

The chart below shows some of the challenge and progress Polaris has made in the last few years. You can see that revenue has grown, driven by improvement in motorcycle sales and the acquisition of Transamerican Auto Parts, a retailer of aftermarket parts for off-road enthusiasts. The decline in operating margin is what was concerning for investors. 

PII Revenue (TTM) Chart

PII Revenue (TTM). Data by YCharts.

A string of product recalls led to higher-than-expected expenses and lost sales as dealers and customers questioned Polaris' quality. In the third quarter, there were some early signs that those challenges are in the past. 

If the operational improvement continues, we could see Polaris' operating margins jump back to the mid-teens, where they were as recently as 2015. If that happens, the stock could continue its charge higher. 

Why there's reason for hope

The two reasons for hope right now are motorcycles and a continued recovery in off-road vehicle sales. The Indian Motorcycle line in particular is gaining market share against Harley-Davidson, and management said that retail sales were up 16% in the third quarter. Polaris is eliminating the Victory brand to focus on Indian and could create a brand to rival Harley-Davidson in the long term. 

On the off-road side, Polaris is coming off some weak comparisons after recalls hit sales last year. Retail sales of the RZR side-by-side vehicle were up "high-teens percent" in the third quarter, according to management, and ATV sales were up "mid-teens percent." Management expects full-year off-road and snowmobile sales to be up by a mid-single-digit percentage, so there are some long-term signs of recovery in the core off-road business. 

Is Polaris' stock a value? 

If Polaris' business recovers fully, it's possible that net income could exceed the $455 million range the company made in 2014 and 2015. At $455 million in net income and with a current $7.57 billion market cap, the stock trades at 16.6 times earnings, which isn't a steal but isn't a bad price, either. 

Given the steady improvement in operations and financials, I think Polaris is a solid stock today. 2018 may not be the company's best year yet, but a better year than the last two would be a step in the right direction. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. The Motley Fool has a disclosure policy.