Arctic Cat (ACAT)
If you haven’t being paying attention to Arctic Cat (ACAT) early in 2014, you should know that this small-cap stock has taken a 26% haircut in the first month of the year thanks to an earnings report that significantly missed the mark.
The investor uncertainty created by a 44-cent earnings miss is understandable, especially when it was followed by a downward revision in its 2014 guidance. Originally expecting annual earnings of at least $3.27 per share, ACAT stock lowered its guidance to $2.90. That’s never a good sign.
However, its fundamental business is still very sound, led by good sales of its Wildcat side-by-side vehicles. Its all-terrain vehicles (includes side-by-sides) delivered 12% revenue growth year-over-year in the third quarter. Nine months into its fiscal year, ACAT posted sales growth of 7% year-over-year for ATVs, and reasonably strong sales are expected in Q4. The same holds true in 2014.
By almost every valuation metric, ACAT stock is cheaper than Polaris (PII), its much bigger competitor. While I like PII stock I’m going with Arctic Cat because any positive surprises in 2014 will most certainly boost ACAT stock. Having said that, be prepared for some more volatility over the next 11 months, as market concerns could take a toll on leisure stocks.