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Is Polaris Headed for a Breakdown?

A level of support has formed in the chart of Polaris Industries Inc. (PII). The has tested the level several times over the past six months and appears to be falling back down to it again. If it falls through, a breakdown is expected. Read more to learn how to profit from this trade.

Polaris Industries Inc. (PII) designs and manufactures off-road vehicles, including all-terrain vehicles and side-by-side vehicles for recreational and utility purposes, snowmobiles, small vehicles, and on-road vehicles, including motorcycles and low-emission vehicles, along with the related replacement parts, garments, and accessories.

The company has been benefiting from strong demand for recreational vehicles and a shortage of inventory in the industry. This led to a strong second quarter where earnings rose 107.7% year over year and sales jumped 40.2% year over year.

PII has a solid balance sheet with only $53 million in short term debt and a current ratio of 1.2. EBITDA has grown an average of 21.4% per year over the past three years. However, earnings are expected to fall 29.1% year over year in the current quarter.

The stock appears undervalued based on both its trailing and forward P/Es of 11.89 and 13.93. This has led to a Value Grade of A in our POWR Ratings system. The stock showed bullish momentum from November to April, but performance has been mixed since then, as shown in the chart below.

Take a look at the 6-month chart of PII below with added notations:

Chart of PII provided by TradingView

PII has tested the $123 level (green) several times over the course of the past six months. The stock appears to be falling back down to that support level again.

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A break of $123 could mean much lower prices for the stock.. If the stock were to break below the support level, a short position could be entered with a protective stop placed above it.

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PII shares were unchanged in premarket trading Thursday. Year-to-date, PII has gained 33.95%, versus a 20.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing.


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