DOOO - Fox Factory: M&A And Cyclical Headwinds Providing An Interesting Opportunity

2024-05-07 09:42:07 ET

Summary

• Fox Factory has shown impressive organic growth and solid profitability, until recently.
• A cyclical downturn, a somewhat lacking cost control mindset and a strategically questionable acquisition have produced a sharp contraction in valuation metrics.
• Currently the stock provides an interesting opportunity to invest in a company with great brands that have a solid premium/perfomance positioning for an investor with a long-term mindset.
• The lack of short-term catalysts amidst a contraction in the industry that should continue for a couple of quarters should provide some time to patiently build a position.

Fox Factory Holding Corp. ( FOXF ) came into my radar around a year ago in a self-made screener that I rely on, what surprised me about the name was the high organic growth rate of the company, but being somewhat of a pathological value investor, at that time the investment thesis required for me to underwrite a somewhat high level of long term growth and preferred to pass on it without much extra due diligence.

A few months later came the market reaction to the third and fourth quarter earnings releases of 2023 and that made me start the process of a deeper due diligence going through the latest 10-K and reviewing the past 5 years of earning call transcript among several other public sources of information.

After that process I think that the current valuation of the company gives a good opportunity to invest in a name with great brands, an amazing track record of growth and solid historical profitability despite a contraction currently affecting the industry, a lack of short-term catalysts and some questionable recent M&A activities....

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