FOXF Stock Study (7-22-24)

I recently did a stock study on Fox Factory Holding Corp. (FOXF) with a closing price of $48.00. The previous study is here.

Value Line writes:

     > Fox Factory Holding Corp. designs, engineers, manufactures, and
     > markets performance ride dynamics products for customers
     > worldwide. Fox Factory Holding is the holding company of Fox
     > Factory, Inc. The company’s premium brand ride dynamics products
     > are used primarily on bicycles, side-by-side vehicles, onroad
     > vehicles with off-road capabilities, off-road vehicles and
     > trucks, all-terrain vehicles, snowmobiles, specialty vehicles
     > and applications, and motorcycles.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 21.6% and 24.0%, respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’23 and EPS declines in ’15, ’20, and ’23. The latter seems more sizable and is mostly responsible for 10-year R^2 of 0.86 versus 5-year R^2 of 0.30. I will be looking for an imminent turnaround to preserve integrity of the visual inspection.

Over the past decade, PTPM leads peer and industry averages despite falling from 11.2% (’14) to 9.5% (’23) with a last-5-year mean of 13.0%. ROE also leads peer and industry averages despite falling from 21.7% (’14) to 9.6% (’23) with a last-5-year mean of 17.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 28.0% (’14) to 38.3% (’23) with a last-5-year mean of 27.0%.

Quick Ratio per M* is 1.1 but Interest Coverage is only 3.8. Value Line grades the company B+ for Financial Strength and writes in its analyst note: “the company is in decent financial shape… expected strong cash flow over the coming years should be more than sufficient to cover capital expenditures.”

With regard to sales growth:

• YF projects YOY 5.3% and 10.3% for ’24 and ’25, respectively (based on 7 analysts).
• Zacks projects YOY 5.3% and 8.0% for ’24 and ’25, respectively (5 analysts).
• Value Line projects 20.4% annualized growth from ’23-’28.
• CFRA provides ACE of 5.2% YOY and 7.4% per year for ’24 and ’23-’25, respectively (8).
• M* provides a 2-year ACE of 5.5% per year.

My 5.0% forecast is below the range.

With regard to EPS growth:

• MarketWatch projects contraction of 43.4% YOY and 5.8% per year for ’24 and ’23-’25 (based on 9 analysts).
• Nasdaq.com projects 48.3% YOY growth for ’25 (6 analysts).
• Seeking Alpha projects 4-year annualized growth of 12.4%.
• YF projects YOY 39.4% contraction for ’24 and 49.6% growth for ’25 along with 5-year growth of 15.0%/year (8).
• Zacks projects YOY 39.2% contraction for ’24 and 48.3% growth for ’25 along with 5-year growth of 9.8%/year (6).
• Value Line projects annualized growth of 16.1% from ’23-’28.
• CFRA provides ACE of 15.8% YOY contraction and 12.2% growth per year for ’24 and ’23-’25, respectively (8).

I am forecasting below the long-term-estimate range (mean of four: 13.3%). Initial value is 2024 Q1 EPS of $1.79/share (annualized) rather than ’23 EPS of $2.85.

My Forecast High P/E is 29.0. Over the past decade, high P/E increases from 26.1 (’14) to 44.8 (’23) with a last 5-year mean of 43.4 and a last-5-year-mean average P/E of 31.3. I am near the bottom of the range (only ’14 is less).

My Forecast Low P/E is 15.0. Over the past decade, low P/E ranges from 14.3 in ’22 to 26.3 in ’21 with a last 5-year mean of 19.2. I am forecasting near the bottom of the range (only ’14 is less).

My Low Stock Price Forecast (LSPF) is $34.00. Default ($26.90) based on initial value from above seems unreasonably low at 44.0% less than the previous close and 29.2% less than the 52-week low. My projection (arbitrary) is lower by 29.2% and 10.5%, respectively.

These inputs land FOXF in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 10.7%.

PAR (using Forecast Average—not High—P/E) of 4.7% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 24 studies in the past 90 days (my study and 7 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 12.0%, 31.5, and 17.2, respectively. I am lower across the board. Value Line projects a future average annual P/E of 22.0 that is less than MS (24.4) and equal to mine.

MS high / low EPS are $3.15 / $1.79 versus my $2.75 / $1.79 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $6.00 soars above both.

MS LSPF of $31.30 implies a Forecast Low P/E of 17.5: just greater than the above-stated 17.2. MS LSPF is 1.7% greater than the default $1.79/share * 17.2 = $30.79 resulting in more aggressive zoning. MS LSPF is 7.9% less than mine, however.

With regard to valuation, PEG is 2.0 and 2.7 per Zacks and my projected P/E, respectively: slightly overvalued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.86.

I think MOS is robust because my inputs (especially most-recent-quarter initial value) are near or below respective analyst/historical ranges. Comparison with MS is limited because of the small sample size, but I am lower than those inputs too. As anecdotal reference, MS TAR of 19.9% is 9.2% per year greater than mine.

Per U/D, FOXF is a BUY under $45/share. BI TAR criterion is met < $40 given a forecast high price ~$80.

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