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Fox Factory Holding Corp Valuation – Initial Coverage $FOXF

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Fox Factory Holding Corp (FOXF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Fox Factory Holding Corp. is engaged in the manufacturing, sale and service of ride dynamics products. The Company’s products fall into two categories: bikes, and powered vehicles, including side-by-sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles (ATVs), snowmobiles, specialty vehicles and applications, and motorcycles. The Company’s brands include FOX, FOX RACING SHOX and RACE FACE. The Company’s products include 34 Factory Series FLOAT FIT4, which provides external adjustability with its fourth-generation FOX Isolated Technology and closed-cartridge damper, and includes a self-adjusting negative chamber air spring; X2 technology, utilized in its Factory Series FLOAT and DH rear shocks; PODIUM Internal Bypass, and X2 technology utilized in its 2.5 PODIUM shocks for side-by-sides that feature high and low speed rebound adjustment, high and low speed compression adjustment, and a dual-rate spring for the rear shocks.

FOXF Chart

FOXF data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FOXF – August 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,411,077,023 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.23 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 785.29% Pass
6. Moderate PEmg Ratio PEmg < 20 37.88 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.81 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.23 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.53 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.00
MG Growth Estimate 15.00%
MG Value $38.32
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $14.43
MG Value based on 0% Growth $8.46
Market Implied Growth Rate 14.69%
Current Price $37.70
% of Intrinsic Value 98.38%

Fox Factory Holding Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.47 in 2013 to an estimated $1 for 2017.  This level of demonstrated earnings growth supports the market’s implied estimate of 14.69% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Fox Factory Holding Corp revealed the company was trading above its Graham Number of $12.61.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was 37.88, which was above the industry average of 18.18.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.38.

Fox Factory Holding Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.38
Graham Number $12.61
PEmg 37.88
Current Ratio 2.23
PB Ratio 6.81
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $207,958,000
Total Current Liabilities $93,176,000
Long-Term Debt $60,774,000
Total Assets $368,729,000
Intangible Assets $114,359,000
Total Liabilities $154,435,000
Shares Outstanding (Diluted Average) 38,725,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.41
Dec2016 $0.94
Dec2015 $0.66
Dec2014 $0.73
Dec2013 $0.68
Dec2012 $0.44
Dec2011 $0.42
Dec2010 $0.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.00
Dec2016 $0.76
Dec2015 $0.64
Dec2014 $0.59
Dec2013 $0.47
Dec2012 $0.33
Dec2011 $0.23
Dec2010 $0.11

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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