THOR Industries (THO)

RV manufacturer Thor Industries (NYSE:THO) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 3.3% year on year to $2.89 billion. Its GAAP profit of $2.53 per share was 40.7% above analysts’ consensus estimates.

Company Overview

Created through the acquisition and merger of various RV manufacturers, THOR Industries manufactures and sells a range of recreational vehicles, including motorhomes and travel trailers, catering to consumers seeking the freedom and comfort of the RV lifestyle.

Much capital investment and technical know-how are needed to manufacture functional, safe, and aesthetically pleasing automobiles for the mass market. Barriers to entry are therefore high, and auto manufacturers with economies of scale can boast strong economic moats. However, this doesn’t insulate them from new entrants, as electric vehicles (EVs) have entered the market and are upending it. This has forced established manufacturers to not only contend with emerging EV-first competitors but also decide how much they want to invest in these disruptive technologies, which will likely cannibalize their legacy offerings.

THOR Industries' competitors in the recreational vehicle market include Winnebago Industries (NYSE:WGO), Forest River (a subsidiary of Berkshire Hathaway NYSE:BRK.B), Polaris Inc. (NYSE:PII), and ​Knaus Tabbert (ETR:KTA).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, THOR Industries grew its sales at a sluggish 3.3% compounded annual growth rate. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. THOR Industries’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 11.4% annually.

This quarter, THOR Industries reported modest year-on-year revenue growth of 3.3% but beat Wall Street’s estimates by 10.1%.

Looking ahead, sell-side analysts expect revenue to grow 1.6% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

THOR Industries has bad unit economics for an industrials business, signaling it operates in a competitive market. This is also because it’s an automobile manufacturer.

Automobile manufacturers have structurally lower profitability as they often break even on the initial sale of vehicles and instead make money on parts and servicing, which come many years later - this explains why new entrants such as Rivian, Lucid, and Nikola have negative gross margins. As you can see below, these dynamics culminated in an average 15.3% gross margin for THOR Industries over the last five years.

THOR Industries’s gross profit margin came in at 15.3% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

THOR Industries was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.5% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, THOR Industries’s operating margin decreased by 3.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. THOR Industries’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, THOR Industries generated an operating margin profit margin of 7.1%, up 1.3 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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.

THOR Industries’s weak 3.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For THOR Industries, its two-year annual EPS declines of 36.8% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, THOR Industries reported EPS at $2.53, up from $2.13 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects THOR Industries’s full-year EPS of $4.17 to grow 14.7%.

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.

THOR Industries has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.8%, subpar for an industrials business.

Taking a step back, an encouraging sign is that THOR Industries’s margin expanded by 3.2 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although THOR Industries 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. Its five-year average ROIC was 13.3%, higher than most industrials businesses.

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. Unfortunately, THOR Industries’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

THOR Industries reported $508.3 million of cash and $1.01 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 $668 million of EBITDA over the last 12 months, we view THOR Industries’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $34.38 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.

We were impressed by how significantly THOR Industries blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this was a solid print. The stock traded up 13% to $93 immediately following the results.

Updated: June 12, 2025 at 11:22 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

THOR Industries doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its low gross margins indicate some combination of competitive pressures and high production costs.

THOR Industries’s P/E ratio based on the next 12 months is 18.1x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $88.17 on the company (compared to the current share price of $87.97).