Recreational vehicles, the business of motor homes and camping trailers, can be an interesting investing niche. It's an old-school industry that has managed to stay relevant. Lately, times have been very good.
According to the Recreational Vehicle Industry Association, or RVIA, U.S. RV manufacturers shipped 356,735 vehicles in 2014.
That was an eight-year high, up 11.1% from 2013 levels. RV sales were up another 7.9% in the first quarter of 2015, and the RVIA thinks that the industry's sales could hit a new record in 2016.
So, where are the investment opportunities? Many of the key players are privately owned, or part of bigger conglomerates. But there's one company that stands out as well managed, with great brands -- and its stock might even be a good buy right now.
After a big wave of consolidation, a big name left standing
Not all that long ago, the RV industry didn't really have a dominant player. But as in many other industries, a wave of consolidation changed that -- leaving just a few big names behind many of the industry's most famous brands.
Indiana-based Thor Industries (NYSE:THO) is the biggest of the big. When added together, Thor's portfolio of brands and subsidiaries makes it the world's largest manufacturer of recreational vehicles.
Thor's jewel is Airstream, the famous maker of luxury RVs that traces its roots back to the 1930s. Today, Airstream makes some motor homes, but it's best known for its iconic shiny-aluminum "camping" trailers, which feature classic names like "International Serenity" and "Land Yacht."
Airstream isn't really known for motorhomes, although it has a few. But Thor's portfolio includes its namesake Thor brand, a motor home leader with offerings all the way up to the top end of the market. The company also owns a slew of RV trailer brands, including Dutchmen, Crossroads, and Heartland, along with the Bison Coach brand of premium horse trailers.
But why invest? Because it's a well-run company in a profitable niche, plain and simple.
"Disciplined, profitable growth" and a solid balance sheet
Thor CEO Bob Martin and other senior managers like to point out that the company hasn't posted an annual loss since 1980 -- a 34-year run that includes the severe 2008-2009 recession.
Martin is a fan -- and a practitioner -- of "disciplined, profitable growth." Salesof $3.5 billion in the fiscal year ended on July 31, 2014 (Thor's fiscal 2014) were an all-time record and a 9% increase over very good 2013 results -- which in turn were up 23% from 2012. Thor's net income of $175.5 million in fiscal 2014 represented a 16% increase from the year before.
Thor's stock has had a good run over the last five years.
Thor's growth has continued into fiscal 2015. Through the first three quarters of its current fiscal year, ended April 30, revenues were up 19% from the first three quarters of that very good 2014, and net earnings rose 16%.
During the last earnings report, Martin noted that the higher end of the RV market remains soft, something that hurt rival Winnebago Industries in its most recent quarter. But revenues from Thor's strong trailer business (what it calls "Towable RVs") grew 15% to $919.4 million in the third quarter, helping to offset a more modest 4% increase in revenue from Thor's "Motorized RV" lines.
Thor's strong return on equity (20.9%) suggests careful management, as does its balance sheet: As of April 30, the company had $259.4 million in cash on hand -- and zero long-term debt.
Martin and executive chairman Peter Orthwein plan to keep Thor in position to benefit from the overall industry's ongoing growth, making strategic acquisitions while being careful with the company's cash. We like that.
Thor Industries' stock is arguably cheap right now
Thor's stock might even be a bit cheap right now, because those good-sounding third-quarter results fell short of Wall Street's optimistic estimates. The stock gave back most of the 10% it had gained to that point this year after the earnings report was released on June 4.
It has recovered some ground since (it's now up about 3.7% so far in 2015), but at about $58 it's still short of the $60-$64 range it was trading in before the most recent earnings report. That might represent real value: Its price-to-earnings ratio of about 15.7 is short of the range (17 to 21, roughly) the stock has traded in over the last couple of years. A modest dividend (the stock is yielding about 1.7%) is icing on the cake.
Lingering concerns about the health of the U.S. economy might have something to do with that, given that RV sales are obviously cyclical. But with economic indicators recently looking a bit brighter, this might be the time to pick up shares of this well-run company.