Thursday, April 26, 2012

PII: eXtreme vehicles

Polaris Industries Inc. (PII) makes all-terrain vehicles, motorcycles and snowmobiles. Generally it makes vehicles with a lot of black in the color scheme and promotional art that brings to mind the words "eXtreme Performance".

The Medina, Minnesota company sells through dealers and distributors in the United States, Canada and Europe.

PII had the most bullish chart among 13 stocks added today to the Zacks top-buy list.

The price began its most recent leg up on Jan. 5 from $55.09, rising to today's high (so far) of $81.91.

The latter half of the uptrend has been interrupted twice with corrections lasting more than a week. The most recent pop to the top was an upside gap on April 18 following an 8.4% earnings surprise.

The price has traded within the gap-day range ever since, with the exception of a brief breakout today that was immediately retraced. Also, volume has declined sharply since the gap-day spike.

Bullish chart? Yes. Unambiguously so? No.

The price has been in blue-sky territory since the end of 2010. But a trades occur in the now, and that means it will take a persistent breakout above $81.38, the gap-day high, to turn the trend unambiguously bullish.

Polaris has an amazing return on equity of 51%, with low long-term debt amounting to just 20% of equity. These are not figures that I see often as I screen companies.

Institutions own 66% of shares -- a bit below top rank -- and the price has not been bid up to extraordinary levels. It takes $1.98 in shares to control a dollar in sales.

Earnings, to my surprise, don't show a high degree of seasonality, nor are they accelerating at a steady clip. They're higher now than they were in 2010 and 2011, but earnings have tended to form plateaus rather than trendlines.

PII on average trades 1.2 million shares a day. The options selection, open interest and bid/ask spreads are surprisingly good, high and narrow, respectively, for such a low volume stock.

Implied volatility is at a six-month low, 32%, and has fallen sharply since mid-April.

Traders are pricing in a 68.2% chance that the price will close between $73.06 and $87.86 a month from now, for a maximum gain or loss of 9.2%.

Polaris next publishes earnings on July 16. The stock goes ex-dividend, most likely, in late May for a quarterly payout  yielding 1.84% annualized.

Decision for my account: Love the financials. Options look great. But I have reservations about the very near term chart, as noted above. I'll consider opening a bull position on PII upon a persistent breakout above $81.38. 

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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