Thor Industries (NYSE:THO) has seen a wild ride over the last few years. THO stock had increased steadily from 2009 to early 2018. However, increased tariffs and rising interest rates hurt sales soon after, and THO plummeted.
Still, THO stock has recovered from the lows of Christmas week. Also, interest rates have again fallen, and the trade war with China may come to an end soon.
At these levels, Thor Industries stock could present an opportunity as the company resumes its earnings growth.
THO Stock and an Awful 2018
Unlike its rival Winnebago (NYSE:WGO), the name Thor may not resonate with the American public. However, most Americans know its RVs. Thor produces the popular Airstream RV, as well as brands such as Heartland and Keystone. Thor manufactures these homes on wheels while independent dealers sell them to the public. They come in a motorized form or a towable version that can be pulled by a truck built by a company such as Ford (NYSE:F) or GM (NYSE:GM).
THO stock benefitted from growth for most of the decade. For a brief time in early 2018, THO had risen above $155 per share. However, 2018 became its most challenging year since the 2008 financial crisis. During this time, Thor also acquired Europe’s Erwin Hymer Group, making it the world’s largest RV manufacturer. Still, this status did not head off the stock’s decline.
In 2018, net sales fell by more than 20%. The company blamed tariffs and higher interest rates for the drop off in sales. It also found itself temporarily paying a 55.7% effective tax rate, up from 31.4% the previous year. This devastated THO stock as it briefly lost more than two-thirds of its value by the week of Christmas.
Business Conditions Are Improving for Thor Industries
However, since hitting that low of $47.71 per share on Dec. 24, the stock has now risen to the $64 per share range. This means that THO currently trades at levels it saw in the 2014-15 timeframe.
Today, THO benefits from improving business conditions. It expects its effective tax rate to fall to the 23-25% range this year. Also, the specter of tariffs gave way to new trade deals with Mexico and Canada last year. Once the Trump Administration comes to an agreement with China, Thor Industries and other manufacturers should gain more clarity on materials costs.
Moreover, interest rates have fallen in recent months. The 10-year rate rose as high as 3.25% in November. Then, rates began a steep drop. Although they have risen in recent days, the current rate stands at around 2.5%. Both factors should increase the affordability of RVs.
Value, Yields and THO Stock
This affordability also extends to Thor Industries investors. Despite the recent increase in the stock price, the forward price-to-earnings (PE) ratio now stands at about 8.6. This comes in well below the average PE ratio of 15.4 over the last five years. It also comes thanks to improving profit growth. For 2020, Wall Street predicts earnings of $7.51 per share, a 39.3% increase from the predicted 2019 profit of $5.39 per share.
Stockholders also benefit from the dividend. The current annual payout of $1.56 per share yields just over 2.4%, significantly higher than the S&P 500 average of 1.86%. Moreover, the company has hiked this payout every year since 2010. Hence, investors can expect a growing source of cash flow while they wait for Thor Industries stock to move back toward its 2018 highs.
Final Thoughts on THO Stock
The return to profit growth again makes Thor Industries stock a buy. The company faced a difficult 2018 as taxes, interest rates, and higher material costs weighed on the bottom line.
Now, most of those roadblocks have reversed course. Due to the decline in 2018, THO trades at a single-digit forward PE ratio. Both that low multiple and the rising dividend could send Thor Industries stock higher as the company resumes its path to growth.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.