When Polaris Industries (NYSE:PII) was mired in protracted product recalls because its popular RZR side-by-sides held the very real risk of spontaneously combusting, shares of the powersports vehicle manufacturer rose. While it is still having trouble getting that problem under control, Polaris recently reported strong earnings across all its divisions -- and its stock plunged.

Although that could be typical stock market contrarianism, investors with a long-term timeline should look at this sharp pullback as a buying opportunity. Consider just how robust Polaris results were:

  • Despite repeated recalls, sales of off-road vehicles jumped 17%, indicating there's been no lasting damage to RZRs reputation.
  • Snowmobile sales were up 28%.
  • Indian Motorcycle retail sales rose by low, double-digit percentages even though the industry for large bikes looks like it's in free fall and rival Harley-Davidson (NYSE:HOG) watches sales tumble.
  • Global adjacent market sales were up 24%.
  • Even the aftermarket parts market saw a 1% sales increase, even though its TAP acquisition had slightly lower sales for the period a soft market for light-duty trucks.

Polaris Industries even raised its full-year guidance, and now expects sales to rise 4% to 6% over last year, while raising the low end of its earnings guidance so that it now expects profits to be in a range of $6.05 to $6.20 per share. There really wasn't anything in this report to warrant Polaris stock falling 12% afterwards.

Family in a side-by-side off-road vehicle

Image source: Polaris Industries.

No good deed goes unpunished

So what's the problem? Tough to say. Despite Harley's horrible earnings where bike sales plunged 12% in the first quarter, its stock actually jumped 5% on the news as investors bought into management pinky-swearing that they're going to turn things around. My colleague Travis Hoium suggests it may be related to the midpoint of Polaris' earnings guidance range, which while increased, is still below analyst expectations.

It's a good reason why investors should ignore what Wall Street is saying about Polaris (and Harley-Davidson, for that matter) and do the opposite.

Harley has been able to maintain its profit margins because it refuses to engage in discounting that many in the industry, including Polaris, engage in. It believes its products are worth a premium, and is willing to forego sales as a result. Conversely, Polaris continues to see Indian motorcycle sales grow, it's also maintaining sales growth with the RZR.

A leader of its own

Polaris is the industry giant in off-road vehicles where Statista shows its 41% share of the side-by-side market is nearly identical to its next four competitors combined. Can Am has a 13% share followed by John Deere at 12%, while Textron's Arctic Cat and Honda (NYSE:HMC) tied for fourth place at 9%.

This is important because off-road vehicles represent the lion's share of where Polaris derives its revenues, representing 64% of the $1.3 billion it generated in the first quarter. It was two-thirds of the total for all of 2017.

The aftermarket segment remains the real weak spot for the powersports vehicle manufacturer. I was never very keen on the acquisition in part because it bought into a weakening market for Jeeps and light-duty trucks. Despite the massive 45% gain Fiat Chrysler (NYSE:FCAU) scored in Jeep sales in March (it was the brand's biggest gain ever), sales had been down 11% in 2017 as fleet sales were reduced, suggesting TAP's performance for Polaris could be a volatile one.

Beyond that, however, Polaris Industries is showing the kind of operational excellence investors have come to expect. Though it still needs to fix its vehicle fire hazard issues, it is becoming less of a problem as time goes on, and investors would do well to focus instead on the discount the market has given them on its stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.