Partnerships With BMW, Ducati, And Triumph Will Expand Powersports Market Reach

Key Takeaways

• Cost reduction and operational efficiency efforts are expected to improve profitability and enhance free cash flow.
  
• New partnerships, innovative products, and market expansions are anticipated to drive revenue growth and offset other area declines.
  
• Economic challenges, production issues, and potential tariff changes could dampen FOX's revenue and margins in automotive, powersports, and bike sectors.

Catalysts

Designs, engineers, manufactures, and markets performance-defining products and system worldwide.

• Fox Factory's $25 million cost reduction initiative is expected to enhance net margins and improve profitability through better inventory controls, strategic chassis mix management, and operational consolidation.
  
• New OEM customer partnerships and product development initiatives in the powersports sector, including relationships with BMW, Ducati, and Triumph, are anticipated to drive revenue growth and offset declines in other areas.
  
• The strategic focus on operational efficiency, including facility consolidation in Taiwan, is expected to lead to margin improvement and higher rates of free cash flow, positively impacting net margins.
  
• Expansion into new categories, such as the AGwagon in the agricultural market, and innovative products like a suspension package for RVs, are set to open new revenue streams and enhance overall revenue growth.
  
• The new role as MLB's official bat partner and product launches in the Marucci and Victus brands aim to incrementally increase sales, boosting revenue and potentially improving net income.

Fox Factory Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fox Factory Holding's revenue will grow by 4.4% annually over the next 3 years.
• Analysts are not forecasting that Fox Factory Holding will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Fox Factory Holding's profit margin will increase from -17.6% to the average US Auto Components industry of 5.1% in 3 years.
• If Fox Factory Holding's profit margin were to converge on the industry average, you could expect earnings to reach $81.8 million (and earnings per share of $2.0) by about July 2028, up from $-249.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.3x on those 2028 earnings, up from -4.7x today. This future PE is greater than the current PE for the US Auto Components industry at 14.9x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.74%, as per the Simply Wall St company report.

Fox Factory Holding Future Earnings Per Share Growth

Risks

• Ongoing OEM production issues in the automotive sector and subdued growth in the premium truck category, despite its resilience, could impact future revenue and margins for FOX.
  
• The powersports sector faces challenges, including OEMs managing production levels to address dealer inventory and sell-through, potentially affecting revenue and earnings in this segment.
  
• The impact of potential tariff changes introduces uncertainty, affecting costs for certain products like aluminum baseball bats manufactured in China, posing a risk to net margins and earnings.
  
• Inventory adjustments in the bike sector and the reluctance of OEMs to end the year with stock could lead to fluctuating revenue and margins, as the market experiences uneven recovery rates across different geographies.
  
• Economic factors, such as high interest rates and potential macroeconomic challenges, could dampen consumer purchasing behavior in key segments like the automotive sector, impacting overall revenue and earnings.

Valuation

• The analysts have a consensus price target of $30.0 for Fox Factory Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $81.8 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 8.7%.
• Given the current share price of $27.93, the analyst price target of $30.0 is 6.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.