In this segment, the Industry Focus crew turns its attention to recreational vehicle leader Thor Industries (NYSE:THO), a $7.2 billion manufacturer of motorhomes and towable RVs.

Learn how Thor is expanding at a brisk pace, while insulating itself from potential cyclical downturns in the industry.

A full transcript follows the video.

This video was recorded on Feb. 6, 2018.

Vincent Shen: Our next company is Thor Industries, ticker THO. This stock also saw a major rally in 2017, up about 50%. Though we're talking about the company second in our discussion, Thor is the undeniable leader in this industry, with over 50% market share for towables and 40% market share for motorhomes. Asit, how much bigger of an operation is Thor, in terms of their revenue and some of these other financial metrics?

Asit Sharma: Thor sells about $7.2 billion worth of products in a year. That's, you set that aside, Winnebago (NYSE:WGO) is $1.5 billion in annual sales, and we'll see how much bigger they are. They have a market cap of close to $7 billion vs. Winnebago's $1.4 billion market cap. So it's magnitudes larger than Winnebago, going back to that opportunity that Winnebago has, with its great brand name, to expand in the industry. It owns the celebrated Airstream motorhome brand. One of the ways that it's grown is through acquisition, which again, I'll talk about in a second here.

Shen: Thor is a little different also in its product lineup. Their towables are their biggest segment, with about 71% of revenue, and motorhomes are growing their share from about 22% in 2015 to 27% in 2017. So a bit of a reverse situation for this company compared to Winnebago. They also are on a pretty similar earnings calendar as Winnebago. How did the most recent results for Thor come out? And how does that point to some of the changes in their business with that acquisition that you mentioned, and the state that the industry is in?

Sharma: The most recent quarter for Thor was a knockout quarter. They increased their revenue by 31% to $2.2 billion, and their net income increased 63% to $128 million. The acquisition that I was referring to is a 2016 -- I think this was July 2016 -- acquisition of a company called Jayco.

Jayco is interesting, because, Vince, you talked about the diversity in product that Winnebago wants to explore. To me, Jayco brings all of this to Thor. It's a manufacturer of recreational vehicles but not just the motorized homes. They do conventional travel trailers, so the towables we talked about. They also do pop-up camping trailers. And for you, people who own these, they do fifth wheel travel trailers, not to get too specific here. They have a wide range of products. They're also based in the Midwest, they're based in Indiana, so they're close to the nexus of Thor manufacturing. This was a $576 million acquisition, but it gives you an example of what both of these companies are doing. They want to buy diversity of revenue, and they also want to buy insulation from a potential downturn. This quarter that they just reported, it shows you both through organic growth and acquisition that they are -- and you said at the outset of the show, Vince -- they're riding a tailwind right now.

I want to go back for a second just to talk about, as we've talked about on the show many times, the difference between discretionary spending and spending on staples. Right now, the economy is growing at between a 2% to 3% rate of the gross domestic product, and that's actually true globally now. Consumers are making the purchases for recreation. We're on a gradual up-curve of global GDP. I don't know if we'll have a recession. For those of you watching the market the last couple of days, maybe there's some signal there. But these kinds of numbers aren't going to last forever. It's the mission of Thor to diversify for when that inevitably slows a bit.

Shen: Last couple of minutes here, overall, I'd say both Thor and Winnebago, they're not the only companies in the outdoor recreation market that are trying to expand their base and their target markets and attach themselves to a greater part of that $800 billion plus industry, with RVs specifically only being about $17 to $18 billion of that. Both of these businesses are based primarily in the U.S. Thor included some pretty eye-opening numbers in their latest earnings presentation. Strong annual growth of 11% expected for the RV industry over the next five years. Also, 34% of RVs sold in 2016 were to first-time buyers, and eight in 10 of the new buyers were under the age of 65. Again, there's some of the demographic tailwinds that they're enjoying.

I want to give you, Asit, a little bit here to share. Any last thoughts that you had for these companies, any final takeaways for listeners before we close out?

Sharma: Certainly. If you're interested in Thor Industries in particular, one thing that really caught my eye late last year when I was doing some analysis is their backlog. Thor has an order backlog of $3.6 billion. That's a 70% increase over the prior year, and it represents 50% of their annual revenue. The company that this brings to mind is, of course, Boeing. Boeing, the airplane manufacturer, has a huge backlog, and it's able to manage its own revenue by just producing a little faster. It's a great position to be in.

So in a cyclical downturn, Thor itself has some mechanical ability to pump up earnings just a bit by producing faster. And it's taking excess cash flow, it's paying down debt rapidly. It paid down the Jayco acquisition, which was, I think they used about $360 million worth of debt, they've paid that down to about $80 million now. They've also used their cash flow to increase their production capacity. They're looking ahead to that time where sales on the top line might slow, but they can still record great revenue for a quarter, again, by that mechanism of throughput. That's very interesting, about this market leader. Though they're extremely big -- again, if you looked at Boeing's chart in the last year, being big doesn't necessarily mean you can't grow at a pretty fast rate. I think that this company has a lot of potential ahead, as does Winnebago.

My final thought on both of these companies is, they're pretty fairly valued and can grow.

Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool recommends Thor Industries. The Motley Fool has a disclosure policy.