BRP vs. Polaris: The Better Buy of the 2 Downtrodden Leisure Stocks

Barchart · 10/16 12:14

If you’re bearish by nature, yesterday was a terrible day in the markets. The 52-week highs outnumbered the 52-week lows by 24-fold.

It was even worse if you were a  BRP Inc. (DOOO) shareholder. DOOO was one of the 14 stocks hitting a 52-week low. On Tuesday, it traded as low as $56.21, its 13th time hitting a 52-week low in the past 12 months and its lowest in the past three years. 

Due to this downward momentum, the Barchart Technical Opinion rates it a near-term Strong Sell. That compares to a Weak Sell for its largest competitor, Polaris (PII), which has hit 25 52-week lows in the past year. 

As a good Canadian, my gut goes with BRP, but my head goes with…

The Good About BRP

Except for fiscal 2021 (January year-end) and the latest 12 months ended July 31, BRP has increased revenues on an annualized basis in eight of 10 periods over the past decade. 

Since January 2015, according to S&P Global Intelligence, it has grown revenue by 157% from CAD$3.52 billion ($2.56 billion) to CAD$9.03 billion ($6.56 billion) at the end of July. Its operating income over the same period has grown by 186% to CAD$838 million ($608 million) from CAD$293 million ($213 million). 

That’s some pretty impressive growth. Over this period, BRP stock has increased by 263%, a compound annual growth rate of 14.52%, 257 basis points higher than the S&P 500. And that’s despite being throttled by the index in 2024.

BRP and Polaris operate in a cyclical business driven by the economy and interest rates. If either of those is suffering, cyclical business customers won’t be opening their wallets nearly as quickly. The first six months of fiscal 2025 have demonstrated that. 

However, one thing is certain: BRP will continue to innovate even if sales aren’t setting records like they did a year ago. 

For example, in September, the company announced that it had opened its new design and innovation center in Palm Bay, Florida. This is where it conducts research and development to create new water-related products to add to its existing Sea-Doo watercraft and pontoons, Alumacraft and Quintrex boats, Manitou pontoons and Rotax marine propulsion systems.

“At BRP, innovation runs deep in our DNA and we are passionate about delivering outstanding riding experiences to our customers all over the world,” said José Boisjoli, President and CEO of BRP. “Our Palm Bay site plays a pivotal role in our innovation journey and this is why, over the last few years, we have invested more than 15 million US $ in this facility.”

Lastly, the company launched the 2025 Can-Am Origin and Can-Am Pulse electric motorcycles in August. Once upon a time, Can-Am was a big deal in the motorcycle business. It intends to get back there, only using electric power. 

“A key feature of the Can-Am motorcycle lineup that sets it apart is an innovative liquid-cooled system, which includes the battery, charger, inverter, and motor. The system significantly limits battery degradation over time while simultaneously optimizing range and charge time,” BRP’s Aug. 20 press release stated. 

Regarding product innovation, its powersports offerings, whether on-road, off-road or on the water, are leading the way.  

The Bad About BRP

The biggest concern is whether the market share it’s lost in the past six months is temporary or if fiscal 2024 is as good as it gets. In 2021, it had revenue of CAD$5.95 billion ($4.32 billion). In 2024, it was nearly double, at CAD$10.37 billion ($7.53 billion).

BRP’s Q2 2025 presentation points out that in the first six months of the fiscal year, its total retail sales were down 13% compared to low-single-digit declines for its competitors. This led to lost market share for its Sea-Doo business as promotional activities ramped up to help move product. 

Over the past few years, its Can-Am ATV (all-terrain vehicle) and SSV (side-by-side vehicle) business. In the second quarter, as dealers looked to reduce inventory, it reduced production, leading to a 33% decline in sales for its Year-Round Products—which include SSVs, ATVs, and 3WV (Three-Wheeled Vehicles)—but still accounted for 54% of its total revenue. 

While the outlook looks bleak, it continues to gain market share in the North American utility SSV market, reaching 30% at the end of June.   

What Does Polaris Bring to the Table That BRP Doesn’t?

Polaris sells products in every category and market that BRP does except personal watercraft. It got into the PWC market in 1992 and closed it down in 2004 after annual revenues fell to $54 million.

It operates three segments: Off-road (SSVs, ATVs, and snowmobiles), On-road (motorcycles and 3WVs), and Marine (pontoon and deck boats). Off Road accounts for 78% of its business, with On-roadOff-road and Marine accounting for the rest. 

It brings two things to the table now that BRP doesn’t.

First, its Off-Road business had a 6% decline in Q2 2024 revenue (June 30 quarter-end). BRP, on the other hand, separates its segments differently, putting snowmobiles in with Seasonal Powersports, which includes Sea-Doo, and the ATVs, SSVs, and 3WVs in Year-Round Powersports.

In the second quarter, Seasonal experienced a 39.6% decline in revenue, while Year-Round revenue was off 32.6%, both significantly higher than Polaris. So, there is an argument that Polaris’s business has held up much better in calendar 2024.

Secondly, despite a 19% drop in its On-Road revenue in the second quarter, BRP still managed to generate $293.3 million from motorcycles and 3WVs. Although BRP is only just entering the motorcycle market, it generates healthy revenue from its Can-Am 3WVs. 

Polaris’s revenue in the first six months of its fiscal 2024, which ran through June 30, declined by nearly 16%. Meanwhile, BRP’s, through July 31, fell by almost 26%, but its gross profit margin was 22.1%, 170 basis points higher. 

The Verdict

Year to date, DOOO stock is down 20.05%, 801 basis points worse than Polaris. However, over the past five years, Polaris has gotten crushed -- it’s down 8.37% compared to a gain of 33.78% for DOOO.

In September, the two stocks crossed paths, with Polaris going up while BRP went down. That’s a function of the latter reporting a month later. The greater decline in second-quarter revenue clearly hurt DOOO stock, although it was already falling at the end of September, nearly a week before reporting.

As for which stock is the better buy, they’re valued almost identically right now by virtually every metric. The one that might tip my hand is the return on assets. BRP’s average ROA over the past five years is 12.6%, almost 50% higher than Polaris at 8.5%.

Given the risk of both stocks continuing to fall, I would consider options to bet on either stock. Unfortunately, even there, you might be out of luck. BRP’s open interest is just 1,109 compared to 14,073 for Polaris. Both numbers are miniscule when Nike’s (NKE) OI is 1.24 million. 

If I had to buy one of these two stocks, it would be BRP, but I would have at least an 18 to 24-month holding period to let this current consumer malaise subside.


 



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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.