What happened

Shares of Fox Factory Holding (NASDAQ:FOXF) climbed last month as the company delivered a better-than-expected first-quarter earnings report and benefited from the perception that its outdoor recreation products, which include mountain bikes, ATVs, and snowmobiles, would see sales gains due to social-distancing protocols.

According to data from S&P Global Market Intelligence, the stock finished the month up 41%. As the chart below shows, the stock rose fairly steadily over the course of the month.

^SPX Chart

^SPX data by YCharts

So what

Despite challenges related to the COVID-19 pandemic, Fox Factory still reported that sales increased 14% in the first quarter to $184.4 million, which beat estimates of $179.6 million.  Profits dipped slightly as the company absorbed costs from factory closings in the second half of March. Gross margin fell from 31.6% to 30.7%, and adjusted earnings were $0.52 per share, down from $0.55 per share a year ago, and missing expectations for $0.56 per share.

A rider on a Fox Factory mountain bike

Image source: Fox Factory.

Fox Factory stock posted modest gains in the days after the earnings report, but shares really seemed to take off after reports emerged that bicycles were selling out at stores as consumers looked to them for socially distant recreation and commuting. Fox Factory seems likely to keep benefiting from that trend.

In fact, the manufacturer got an upgrade on May 29 from Bank of America analyst Rafe Jadrosich, who lifted his rating from neutral to buy, and said that the company should benefit from a shift away from more traditional entertainment to "solitary leisure experiences." 

Now what

Fox Factory stock has continued to rise through June as the broader market has trended upward on hopes for a rapid recovery. The stock is up 21% through June 8 even though there has been no company-specific news. Management pulled its guidance for the year back in April due to the disruption from COVID-19, but investors seem to expect the company to be a winner, propelled forward by the combination of an economic rebound and the ongoing use of social-distancing practices. 

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.