Fox Factory Holding Corp (FOXF)

Fox Factory Holding Corp (FOXF)

Summary:  On Sale

Score:  20/20

MOS:  80%

Share Price:  $152

Sticker Price:  $767

Is Fox Factory Holding stock a good buy?

Fox Factory Holding Corp was founded in 1977 and is based out of Duluth, GA.

The company designs, engineers, manufactures and markets performance-defining products and systems for customers worldwide. They are well known for their shock and suspension systems. Fox Factory Holding Corp. is the holding company of FOX Factory, Inc. Our premium brand, performance-defining products and systems are used primarily on bicycles, side-by-side vehicles, on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, all-terrain vehicles (ATVs), snowmobiles, specialty vehicles and applications, motorcycles, and commercial trucks. 

Fox generates most of its revenue from two channels:

  1. OEM (Original Equipment Manufacturer). An OEM is a company that buys large quantities of components in their supply chain to assemble and sell with their own products. Some of the bicycle OEM’s that Fox has contracts with include Trek, Giant, and Scott. Some of the powered vehicle OEM’s that Fox has contracts with include Ford and Polaris.
  2. Distributors. Small and midsize businesses will sell Fox’s products in retail and online stores.

This company doesn’t exactly jump out in the news like popular FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) but the score of 20/20 and MOS of 80% definitely draws some attention.

When Covid-19 hit in March of 2020, leisure travel dropped considerably and work-from-home became the new trend. Since people were stuck at home and couldn’t travel, they needed to pick up new hobbies or buy new toys. Some of the products that have seen a significant increase in popularity include bicycles, motorcycles, snowmobiles, UTVs, ATVs, and trucks. Fortunately for Fox, they manufacture components for all products listed above.

Over the last year the share price has increased by about 36%. Over the last five years the share price has increased by 614% percent which is a compounded annual growth rate of 48%.

Here is what the news has to say.

This article from zacks.com emphasizes the growing popularity of off-road vehicles. This industry is expected to increase from $14B to $18B from 2020 to 2026. Three companies that are positioned to benefit include Honda, Polaris, and Fox Factory Holding Corp.

This article from gurufocus.com lists five businesses with strong financials and profitability within the vehicle and automotive part industry including Car-Mart, Marine Products Corp, Standard Motor Products, Expel, and Fox Factory Holding Corp.

This article from seekingalpha.com states the consumer discretionary sector can have some weaknesses as products fall more into the “want” category as opposed to “need” category but there are circumstances where a business is in the right place at the right time. Fox Factory Holding happens to be a perfect example. As the effects of Covid-19 sustain, products such as bicycles, ATVs, and motorcycles will continue to fly off the shelf which is great for Fox.

I did some homework on the competition and I came up somewhat empty handed. Here is a breakdown of companies within the automotive part industry.

Fox Factory Holding Corp (FOXF)

Summary: On Sale

Score: 20

MOS: 80%

Revenue: $890M

 

Tenneco (TEN)

Summary: On Sale

Score: 12

MOS: 1%

Revenue: $15B

Tenneco designs, manufactures, and sells clean air, powertrain, and ride performance products and systems for light vehicles and commercial trucks. Although they do sell suspension equipment, it doesn’t look like they serve the off-road vehicle industry.

 

Magna International (MGAN.MX)

Summary: Watch

Score: 13

MOS: 1%

Revenue: $32B

Magna International Inc. designs, engineers, and manufactures components, assemblies, systems, subsystems, and modules for original equipment manufacturers of vehicles and light trucks worldwide. They sell panels, liftgate modules, glass, running boards, dual and e-clutch, camera systems, fog lamps, and other non-suspension equipment.

 

CNH Industrial N.V. (CNHI)

Summary: Overpriced

Score: 8

MOS: 1%

Revenue: $26B

CNH is based out of London and designs, produces, markets, sells, and finances agricultural and construction equipment, trucks, commercial vehicles, buses, specialty vehicles, and powertrain products in North America, Europe, South America, and internationally. 

 

Genuine Parts Company (GPC)

Summary: Overpriced

Score: 9

MOS: 1%

Revenue: $16B

Genuine Parts Company distributes automotive replacement parts, industrial parts and materials, and business products for electric vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles, farm vehicles, small engines, farm equipment, marine equipment, and heavy duty equipment. 

 

LKQ Corporation (LKQ)

Summary: Watch

Score: 14

MOS: 48%

Revenue: $11B

LKQ Corporation, together with its subsidiaries, distributes replacement parts including engines, transmissions, door assemblies, sheet metal products, truck lids, fenders, bumpers, hoods, brake pads, clutches, and suspensions. Although they do sell suspension equipment, it doesn’t look like they serve the off road vehicle industry either.

Now let’s take a look at the 4 M’s.

MOS: The financials are as strong as you can get. With a score of 20/20 and a MOS of 80%, this business steadily increased revenues and profits over the last 5 years.

Meaning: Prior to Covid, Fox has consistently increased its share price which is a reflection on how well the company is run and how few competitors it really has. Post Covid, toys such as bicycles, ATVs, and motorcycles have significantly grown in popularity and it doesn’t look like sales are slowing down. We expect Fox to continue to benefit from the high demands over the coming years.

Moat: There isn’t a direct competitor to Fox that designs, manufactures, and sells high performance suspension products at their level. They are the top choice in the market. This is a perfect example of a company that has chosen to be great at one thing (suspensions) as opposed to good at multiple things (vehicle components).

Management: Mike Dennison has served as CEO at Fox the last two years. Prior to CEO, he served as President of the powered vehicles group for 3 years. Prior to working at Fox, he worked at Flex, a manufacturing partner that helps companies design and build products. Essentially, Flex is what you would call a “job shop” where companies that don’t have their own manufacturing equipment will come to Flex with an idea and money and Flex will build it for them. Dennison spent 22 years at Flex, 3 of those years he served as President and CEO. A job shop trains you to be highly efficient at manufacturing and supply chain which is a perfect background to streamline operations at Fox.

Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

 

Revenue (Found on the Income Statement)

2017:  $403M

2018:  $475M

2019:  $619M

2020:  $751M

2021:  $890M

Revenue is increasing consistently which is a great sign.

 

Net Income (Found on the Income Statement)

2017:  $35M

2018:  $43M

2019:  $84M

2020:  $93M

2021:  $90M

Net Income increased year over year but it has slightly declined in 2021. This is worth paying attention to. After the new year we will get a better idea of the financials.

 

EPS (Found on the Income Statement)

2017:  .97

2018:  1.16

2019:  2.22

2020:  2.43

2021:  2.25

EPS in 2021 has slightly dropped. Similar to Net Income, after the new year we will get a better idea of the financials.

 

Free Cash Flow (Found on the Cash Flow Statement)

2017:  $26M

2018:  $31M

2019:  $35M

2020:  $21M

2021:  $25M

Free Cash Flow has dropped off in 2020 but it’s on the rise again in 2021 which is a great sign.

 

Total Assets (Found on the Balance Sheet)

2017:  $335M

2018:  $425M

2019:  $485M

2020:  $609M

2021:  $1.2B

Total Assets have increased consistently which is a great sign.

 

Total Liabilities (Found on the Balance Sheet)

2017:  $150M

2018:  $190M

2019:  $164M

2020:  $187M

2021:  $567M

Total Liabilities have increased significantly which is okay. Since Covid-19, to meet the manufacturing demand, they have increased their employee workforce.

 

Total Debt (Found on the Balance Sheet)

2017:  $66M

2018:  $98M

2019:  $59M

2020:  $68M

2021:  $389M

Total Debt has also increased significantly in 2021. To cover the expenses of the increased workforce, they most likely have borrowed money from their bank.

 

Total Equity (Found on the Balance Sheet)

2017:  $184M

2018:  $234M

2019:  $321M

2020:  $422M

2021:  $719M

Total Equity has continuously increased year over year which is a great sign.

 

Fox Factory Holding Corp is one of those fairly unknown stocks that has been flying under the radar but has proven to find a perfect niche in the off-road vehicle industry. With the MOS, the financials are outstanding. A score of 20/20 and MOS of 80% is difficult to achieve. With the Meaning, the off-road vehicle industry has grown due to covid-19 and will most likely continue to grow over the coming years. With the Moat, this is the best part of the business as they have very few competitors. With the Management, Dennison has proven to do a fine job leading this business and his background at Flex has given him the experience necessary to scale a business like Fox. 

If you’re heavily allocated in one industry or sector, Fox Factory Holding Corp may be a great consumer discretionary stock to take a look at.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

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