THOR Industries has been on fire lately. In the past six months alone, the company’s stock price has rocketed 52.6%, reaching $104.67 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy THOR Industries, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Do We Think THOR Industries Will Underperform?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons there are better opportunities than THO and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, THOR Industries’s sales grew at a sluggish 3.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.

2. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

THOR Industries’s weak 3.8% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, THOR Industries’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We see the value of companies helping their customers, but in the case of THOR Industries, we’re out. Following the recent surge, the stock trades at 25.6× forward P/E (or $104.67 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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