Dj Ibd: Polaris Reaches 80-Plus Relative Strength Rating Benchmark

Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Polaris (PII)

Market Cap: $3.11 billion

Founded in 1954, Polaris designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.

Why Should You Dump PII?

• Sales tumbled by 13% annually over the last two years, showing consumer trends are working against its favor
• Incremental sales over the last five years were much less profitable as its earnings per share fell by 25.6% annually while its revenue grew
• Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Polaris’s stock price of $55.29 implies a valuation ratio of 7.5x forward EV-to-EBITDA. To fully understand why you should be careful with PII, check out our full research report (it’s free).

AerSale (ASLE)

Market Cap: $413.8 million

Providing a one-stop shop that integrates multiple services and product offerings, AerSale delivers full-service support to mid-life commercial aircraft.

Why Should You Sell ASLE?

• Muted 3.7% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
• Negative free cash flow raises questions about the return timeline for its investments
• Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

AerSale is trading at $8.66 per share, or 26.5x forward P/E. Dive into our free research report to see why there are better opportunities than ASLE.

Fortune Brands (FBIN)

Market Cap: $6.87 billion

Targeting a wide customer base of residential and commercial customers, Fortune Brands makes plumbing, security, and outdoor living products.

Why Are We Out on FBIN?

• Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
• Sales over the last two years were less profitable as its earnings per share fell by 9.5% annually while its revenue was flat
• 6.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $57.29 per share, Fortune Brands trades at 14.5x forward P/E. If you’re considering FBIN for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return).

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.

Off-Road and powersports vehicle corporation Polaris reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 5.6% year on year to $1.88 billion. Guidance for next quarter’s revenue was better than expected at $1.7 billion at the midpoint, 1.5% above analysts’ estimates. Its non-GAAP profit of $0.40 per share was significantly above analysts’ consensus estimates.

Is now the time to buy PII? Find out in our full research report (it’s free).

Polaris (PII) Q2 CY2025 Highlights:

• Revenue: $1.88 billion vs analyst estimates of $1.72 billion (5.6% year-on-year decline, 9.2% beat)
• Adjusted EPS: $0.40 vs analyst estimates of -$0.02 (significant beat)
• Adjusted EBITDA: $119 million vs analyst estimates of $106.2 million (6.3% margin, 12% beat)
• Revenue Guidance for Q3 CY2025 is $1.7 billion at the midpoint, above analyst estimates of $1.67 billion
• Operating Margin: 2.1%, down from 6% in the same quarter last year
• Market Capitalization: $3.11 billion

StockStory’s Take

Polaris’ second quarter results were met with a strong positive response from the market, driven by management’s ability to offset industry headwinds and outperform Wall Street’s expectations on revenue and adjusted profit. Despite a year-on-year sales decline, CEO Michael Speetzen credited strong free cash flow, market share gains across all product lines, and improved operational efficiency for the stronger-than-anticipated outcome. Management also highlighted the impact of aggressive promotions and ongoing pressures from tariffs, but noted that lean manufacturing and lower warranty costs helped mitigate margin pressures.

Looking ahead, management’s forward guidance is shaped by ongoing efforts to reduce tariff exposure, targeted operational efficiencies, and the upcoming launch of new products such as the RANGER 500. CEO Michael Speetzen stated that the company is “focused on maximizing our cash generation and reducing China-sourced parts by 35% by year-end,” while remaining cautious about the macroeconomic environment. The team emphasized continued investment in innovation and dealer support as pivotal to positioning Polaris for a recovery in the powersports cycle and stronger long-term earnings.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strategic actions in supply chain mitigation, product innovation, and disciplined cost management in response to external pressures and industry downturns.

• Tariff mitigation progress: Leadership detailed a four-pronged strategy to reduce exposure to China tariffs, including shifting sourcing locations and negotiating with suppliers, with nearly half of targeted parts now sourced outside China and a plan to transition 80% by year-end.
• Dealer inventory improvement: Management reported a 17% year-over-year reduction in dealer inventory (excluding snowmobiles), attributing healthier channel positions to better demand forecasting and operational discipline, which has lessened the need for heavy promotions.
• Product innovation drives share gains: The launch of new models, such as the XPEDITION in crossover and PowerPlus in motorcycles, helped Polaris achieve market share gains across all major segments despite industry-wide shipment declines and increased promotional activity.
• Operational efficiency and lean manufacturing: The company is on track to deliver $40 million in operational efficiencies this year, a result of lean initiatives and improved quality, which have led to lower warranty costs and higher plant productivity.
• Promotional environment and margin pressure: While promotions remained elevated, management expects some easing in the second half as dealer inventory stabilizes, though mix and incentive compensation continue to pressure margins compared to last year.

Drivers of Future Performance

Polaris’ outlook is driven by ongoing supply chain restructuring, new product introductions, and continued focus on cost discipline amid an uncertain macroeconomic backdrop.

• Tariff exposure and supply chain shifts: Management is prioritizing further reductions in tariff exposure by relocating sourcing away from China, with a goal of reducing China-sourced parts by 35% and a transition plan for most components by year-end, aiming to minimize future cost headwinds.
• Upcoming product launches: The launch of the RANGER 500, targeting value-oriented customers in the utility segment, is expected to broaden the customer base and provide incremental margin opportunities, as the product is designed to compete effectively on price without sacrificing profitability.
• Operational discipline and cash generation: The company will maintain a cautious approach to discretionary spending and capital expenditures, with a focus on maximizing free cash flow and preserving financial flexibility while navigating trade policy uncertainty and potential shifts in consumer demand.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the effectiveness of Polaris’ tariff mitigation strategies and progress in supply chain restructuring, (2) early sales traction and dealer feedback on the new RANGER 500 launch, and (3) the pace of margin recovery as promotional activity normalizes and operational improvements take hold. Changes in macroeconomic conditions and potential trade policy shifts will also be key factors shaping the company’s trajectory.

Polaris currently trades at $55.29, up from $49.44 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

Now Could Be The Perfect Time To Invest In These Stocks

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return).

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.

What Happened?

A number of stocks jumped in the afternoon session after the latest Consumer Price Index (CPI) report showed inflation holding steady, bolstering investor optimism for a potential interest rate cut by the Federal Reserve.

The data, which revealed that inflation remained at 2.7% for the year ending in July, was seen as a positive sign by investors. This stability increases the likelihood that the Federal Reserve might lower interest rates at its upcoming September meeting. Lower interest rates can stimulate the economy by making borrowing cheaper for both consumers and businesses, which often translates into higher consumer spending. This is particularly beneficial for the Consumer Discretionary sector, which includes companies selling non-essential goods and services like apparel, travel, and electronics.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Leisure Products company Polaris jumped 5.7%. Is now the time to buy Polaris? Access our full analysis report here, it’s free.
• Leisure Products company Brunswick jumped 5.8%. Is now the time to buy Brunswick? Access our full analysis report here, it’s free.
• Leisure Products company Malibu Boats jumped 7.3%. Is now the time to buy Malibu Boats? Access our full analysis report here, it’s free.
• Leisure Products company Harley-Davidson jumped 3.8%. Is now the time to buy Harley-Davidson? Access our full analysis report here, it’s free.
• Toys and Electronics company Bark jumped 8.5%. Is now the time to buy Bark? Access our full analysis report here, it’s free.

Zooming In On Bark (BARK)

Bark’s shares are extremely volatile and have had 43 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 8 days ago when the stock gained 4.4% on the news that markets rebounded following a sharp sell-off in the previous trading session as weaker-than-expected U.S. jobs data fueled investor hopes for a potential interest rate cut by the Federal Reserve. The July Nonfarm Payrolls report revealed a gain of only 73,000 jobs, significantly below the 110,000 expected. Compounding the news, prior months' figures were revised downward by over 250,000 jobs. This data, indicating a cooling labor market, has led investors to dramatically increase bets on a September interest rate cut by the Federal Reserve, with the probability jumping to over 80% according to the CME FedWatch Tool. The prospect of lower borrowing costs typically stimulates economic activity and boosts consumer spending on non-essential goods and services, which directly benefits companies in the consumer discretionary space.

Bark is down 54.9% since the beginning of the year, and at $0.85 per share, it is trading 64.5% below its 52-week high of $2.40 from December 2024. Investors who bought $1,000 worth of Bark’s shares at the IPO in December 2020 would now be looking at an investment worth $68.77.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two best left off your watchlist.

Two Stocks to Sell:

Polaris (PII)

Trailing 12-Month Free Cash Flow Margin: 6.2%

Founded in 1954, Polaris designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.

Why Do We Think PII Will Underperform?

• Products and services have few die-hard fans as sales have declined by 13% annually over the last two years
• Earnings per share fell by 25.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
• Diminishing returns on capital suggest its earlier profit pools are drying up

Polaris’s stock price of $53.66 implies a valuation ratio of 7.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PII in your portfolio.

Dun & Bradstreet (DNB)

Trailing 12-Month Free Cash Flow Margin: 17.1%

Known for its proprietary D-U-N-S Number that serves as a unique identifier for businesses worldwide, Dun & Bradstreet provides business decisioning data and analytics that help companies evaluate credit risks, verify suppliers, enhance sales productivity, and gain market visibility.

Why Is DNB Risky?

• 3.7% annual revenue growth over the last two years was slower than its business services peers
• Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 5 percentage points
• Earnings per share were flat over the last four years and fell short of the peer group average

At $9.10 per share, Dun & Bradstreet trades at 8.5x forward P/E. Dive into our free research report to see why there are better opportunities than DNB.

One Stock to Buy:

Copart (CPRT)

Trailing 12-Month Free Cash Flow Margin: 25.7%

Starting as a single salvage yard in California in 1982, Copart operates an online auction platform that connects sellers of damaged and salvage vehicles with buyers ranging from dismantlers and rebuilders to used car dealers and exporters.

Why Is CPRT a Good Business?

• Market share has increased this cycle as its 15.6% annual revenue growth over the last five years was exceptional
• Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
• Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

Copart is trading at $46.19 per share, or 27.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return).

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.