Why is BRP Stock so Cheap?

Don’t sell Ski-Doos when there’s a waitlist and winter’s on the way.

Andrew Willis 8 December, 2023 | 4:20AM
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Interested in other cheap stocks? Check out our recent episode on Rogers Communications Stock

Key Takeaways for BRP Stock:

  • Snow (and sea)-based vehicles have been sought-after as their demand for outdoor recreation surged in recent years despite economic uncertainty. 
  • Consumers may be selling Sea-Doo and Ski-Doo maker BRP as spending slowed in recent months. There are still orders waiting to be shipped to dealers, however, and sales should still outpace wider retail industry sales.
  • We recently raised our economic moat rating for BRP stock (DOO) to wide from narrow. The company’s brand and cost advantage are some contributors, while innovation has consistently won with consumers.

 

Andrew Willis: Did you know that the economic impact of snowmobiling in North America amounts to around $35 billion dollars annually? According to the International Snowmobile Manufacturers Association, over 100,000 jobs have been generated by the industry in the [North American] region.

There must be some serious demand for ski-doos, and as we found out earlier this year, there is a similar demand for sea-doos. Yet some investors may be selling their manufacturer, BRP (DOO), on economic uncertainty. BRP stockholders should keep an eye out for some weak demand in the near term that senior analyst Jamie Katz warns about, but she expects consumer spending patterns to then return to historical levels. And fiscal 2024 should still be a solid year for BRP’s sales.

BRP Brand and the Great Outdoors Support Demand

If consumers are able to manage the maintenance, permit, and trail costs in exchange for way more freedom in the wintertime, then perhaps only gas prices could get in the way of that trade. Although electrics potentially across all segments by 2026 could really change the equation…  

For Morningstar, I’m Andrew Willis.

bulls  BRP Bulls Say

  • BRP has white-space opportunities to expand the business faster than we expect, particularly in the marine business and some niches (like electric) of the year-round lines.
  • Demand from underpenetrated international markets and expansion into new markets like China could lead to demand growing faster than we forecast, which could raise utilization and productivity, leading to higher profitability.
  • Marine will comprise a larger proportion of sales to the company over time, which could generate a better-than-expected operating margin as the category scales, providing cash flow upside.

bears BRP Bears Say

  • Protracted inflation in costs, including commodities, labor, or logistics, could hurt profitability for longer than we currently anticipate.
  • BRP competes with some formidable brand names, such as Polaris and Honda in the snowmobile and ATV sectors, which have higher sales and deeper pockets for advertising and promotional spending.
  • Business depends on credit availability in wholesale and retail segments. The withdrawal of financing sources could prevent inventory from retailing quickly.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BRP Inc89.49 CAD0.28Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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