On Wednesday, Stifel upgraded shares of Fox Factory Holding (NASDAQ:FOXF) from a Hold to a Buy rating, while setting a new price target of $40.00. The stock, currently trading at $31.71, sits near its 52-week low of $30.13, having declined nearly 30% over the past six months.
According to InvestingPro data, this significant pullback has created a potentially attractive entry point. The revision reflects a positive outlook on the company's potential for a favorable risk/reward scenario and an anticipated shift in stock sentiment in 2025. This optimism is largely based on expectations of recovery in the high margin Bike business.
In the analyst's view, current market prices do not fully recognize FOXF's earnings potential, especially considering the Bike division's prospects of achieving a $400 million-plus run rate. Additionally, even a modest recovery in other business areas is expected to contribute to the company's value. InvestingPro analysis suggests the stock is currently undervalued, with a strong liquidity position reflected in its current ratio of 3.21.
The company maintains solid fundamentals despite challenging market conditions, with annual revenue of $1.37 billion in the last twelve months.
According to the sum-of-the-parts analysis provided, the shares are undervalued, trading at a conservative approximately 9 times TEV/EBITDA multiple for the entire business. This suggests that the market is assigning no value to the potential profit improvements in the PVG and AAG segments from their 2024 levels.
The analyst acknowledged that the automotive sector faces challenges, which could result in volatility in the coming quarters. This could potentially lead to new lows for FOXF stock. Nevertheless, the analyst believes that any such weakness should be viewed as a chance to acquire shares at a depressed valuation with limited long-term downside risk.
The report concludes with the analyst's perspective that, given the conservative valuation and the potential for recovery in the Bike business, the current stock price presents an opportunity for investors to establish or increase their positions in Fox Factory Holding. With a beta of 1.6, investors should note the stock's higher volatility compared to the broader market.
For deeper insights into FOXF's valuation metrics and growth potential, investors can access the comprehensive Pro Research Report available on InvestingPro, which includes additional analysis and 8 more key ProTips. The anticipated improvement in the Bike segment is seen as a key driver for a positive shift in sentiment towards the stock in the year 2025.
In other recent news, Fox Factory Holding Corp. reported an 8.5% year-over-year revenue increase to $359 million in its Third Quarter Fiscal 2024 Earnings Call, largely due to a robust performance in its bike business. However, the company faced obstacles stemming from economic uncertainties and quality issues, which led to results at the lower end of projections.
The company's Powered Vehicle Group (PVG) and Aftermarket Applications Group (AAG) experienced declines, while the Specialty Sports Group (SSG) saw growth, bolstered by acquisitions and the bike sector's expansion.
For the fourth quarter and beyond, Fox Factory plans to improve margins and diversify offerings, despite a challenging retail environment. This strategy includes cost-saving measures and operational efficiency improvements, aiming to counterbalance lower OEM demand and excess dealer inventory, which have impacted PVG and AAG net sales.
The company's gross margins declined to 29.9%, and net income fell to $4.8 million, or $0.11 per diluted share. Despite these challenges, the bike business witnessed a 22% sequential growth and a $28 million year-over-year increase, contributing to the company's overall revenue growth.
Fox Factory anticipates Q4 sales to range between $300 million and $340 million, with adjusted earnings per diluted share of $0.25 to $0.40. The company's outlook for 2025 suggests continued demand pressure but growth in the AAG and Marucci segments.
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