Polaris Industries (PII -0.19%) hasn't fared as poorly as some in this era of rampant inflation and sky-high gas prices, with its stock down only 3% year to date compared to a 20% decline in the S&P 500.

One drag on its performance over the past few years, though, has been its money-losing aftermarket Jeep and truck parts retail business. But with the decision to sell Transamerican Auto Parts to private-equity backed Wheel Pros, the company will be more narrowly focus on its core power sports vehicle operations. Does that make Polaris stock a buy?

Riders in a Polaris side-by-side vehicle.

Image source: Polaris Industries.

Tapping out

Transamerican Auto Parts (TAP) was Polaris Industries' first foray into retail, and though something of an odd decision at the time, there was a nexus to its power sports business because the company sold parts and accessories for ATVs and utility vehicles.

In the nearly six years since the acquisition, however, Polaris stock has gained just 32% while the broad market index is up almost 80%. Although it's been a laggard for reasons other than the TAP acquisition, the retail business did nothing to enhance its performance.

TAP represented the vast majority of Polaris' aftermarket segment revenue, some 82% at the end of last year. But growth was always negligible or in decline, and profitability was iffy at best. Most gains in sales and profits Polaris saw in the segment were the result of its other aftermarket businesses, brands that made parts, accessories, and apparel for off-road vehicles, snowmobiles, and motorcycles.

In the first quarter, power sports aftermarket sales soared 16% while TAP sales tumbled 9% to $178 million,  dragging segment gross profits down 11% from last year. 

It became obvious to management that TAP had to go, but while Polaris bought TAP for $665 million, and it generated $760 million in revenue in 2021, it is selling it for a measly $50 million.

Shedding extra weight

The sale of the aftermarket retail business isn't the first ancillary operation Polaris has gotten rid of. It shed the 100-year-old fishing boat business of Larson Boats soon after buying it in 2019, and it unloaded much of its utility vehicle business through the spinoff of its Global Electric Motorcars and Taylor-Dunn units (another 2016 purchase) to Polaris executives who are running them as a separate stand-alone company.

Polaris kept its pontoon and party boat operations as well as its international utility vehicle businesses Aixam and Goupil, and it intends to lean hard into its remaining power sports vehicles. 

Just before the utility vehicle separation, Polaris announced a new electric power sport UTV born of its exclusive partnership with Zero Motorcycles, one of the country's leading electric motorcycle companies. The Ranger XP Kinetic features Zero's muscular 110 horsepower (82 kilowatt) motor that delivers 140 foot-pounds of torque, which Polaris claims make it the most powerful utility side-by-side on the market.

Ready to power up

This is where Polaris Industries should have been all along, focusing on its power sports vehicles, where it is the biggest player in the industry. 

It admits it lost market share in virtually every category in the first quarter, but that was mostly due to supply chain disruptions. Chief Executive Officer Mike Speetzen says Polaris will make market share gains in the quarters ahead, but right now it's predicated on which manufacturer is able to get its vehicles in front of customers earliest.

That puts Polaris in a good position. As the leading power sports vehicle maker, once supply chain bottlenecks begin to open up -- and there are indication things may be starting to ease -- its manufacturing prowess and dealer network ought to enable it to dominate the market in off-road vehicles, snowmobiles, motorcycles, and the growing electric vehicle segment.

A discounted industry leader

At 15 times trailing earnings, 10 times next year's estimates, less than 1 times sales, and with Wall Street expecting Polaris to increase earnings at a 15% compounded annual rate over the next five years, the stock looks ready to hit the road running.

Polaris Industries also relatively recently achieved the equivalent status of a Dividend Aristocrat, or stocks on the S&P 500 that have raised their payout for 25 years or more. It reached this landmark two years ago, and its generous dividend of $2.56 per share currently yields 2.5% annually, which helps make this stock a buy. It's one I actually intend to buy myself within the next week.