Polaris (PII)

Off-Road and powersports vehicle corporation Polaris (NYSE:PII) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 5.4% year on year to $1.84 billion. The company’s full-year revenue guidance of $7 billion at the midpoint came in 0.5% above analysts’ estimates. Its non-GAAP profit of $0.41 per share was 92.8% above analysts’ consensus estimates.

Company Overview

Founded in 1954, Polaris (NYSE:PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Competitors in the outdoor sports industry include Vista Outdoor (NYSE:VSTO), Brunswick (NYSE:BC), and Malibu Boats (NASDAQ:MBUU).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Polaris’s sales grew at a weak 1.1% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a rough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Polaris’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 12% annually.

This quarter, Polaris reported year-on-year revenue growth of 5.4%, and its $1.84 billion of revenue exceeded Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Polaris’s operating margin has shrunk over the last 12 months and averaged 3.1% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, Polaris generated an operating margin profit margin of 1.1%, down 2.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Polaris, its EPS declined by 33.1% annually over the last five years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q3, Polaris reported adjusted EPS of $0.41, down from $0.73 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Polaris’s full-year EPS of $0.83 to grow 7.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Polaris has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.1%, subpar for a consumer discretionary business.

Polaris’s free cash flow clocked in at $116.7 million in Q3, equivalent to a 6.3% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict Polaris’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8.2% for the last 12 months will decrease to 8.4%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Polaris hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 19.8%, impressive for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Polaris’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Polaris reported $335.5 million of cash and $1.73 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $480.3 million of EBITDA over the last 12 months, we view Polaris’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $68.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Polaris beat analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $71 immediately after reporting.

Updated: December 4, 2025 at 10:02 PM EST

Before making an investment decision, investors should account for Polaris’s business fundamentals and valuation in addition to what happened in the latest quarter.

Polaris falls short of our quality standards. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Polaris’s Forecasted free cash flow margin suggests the company will ramp up its investments next year, and its declining EPS over the last five years makes it a less attractive asset to the public markets.

Polaris’s P/E ratio based on the next 12 months is 61.9x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $65.83 on the company (compared to the current share price of $65.73).