Polaris Industries (PII) started earning the Zacks #4 Rank (Sell) last spring when the stock was trading above $150. Entering December, the stock appeared to be finding some footing above $100.
But it was not to last and the traditionally upbeat month for the maker of snowmobiles found the onset of winter to be more cruel than fun.
On December 10, the company announced the recall of over 5,000 snowmobiles and off-road vehicles for various safety issues.
Then on December 17, the company issued an update to guidance that quickly propelled analysts to lower their estimates, resulting in these changes to full-year consensus EPS...
2015: from $7.40 to $6.72
2016: from $8.40 to $7.64
That 9% drop in next year's estimates translates into only 13.7% EPS growth, vs. 2015's expected 1% advance.
Here's a look at the Zacks proprietary Price & Consensus chart which plots annual earnings estimates against a stock's price over time...
As you can see, the analysts were way behind in lowering their estimates as the stock price fell.
Typically, downward earnings momentum precipitates downward stock momentum. That's what has made the Zacks Rank stock-picking system so consistently powerful for the last three decades.
In this case, the analysts were just simply too slow to see the magnitude of unfolding developments at Polaris.
But, they gave us enough of a clue that things were not well by moving estimates just low enough every quarter this year to keep PII popping up as a Zacks #4 Rank (Sell) when it was still trading 50% higher, saving some investors quite a bit of money.
If you are a Polaris investor, or thinking about becoming one, what you want to wait for before buying any shares is when the Zacks Rank makes a full turn-around. When estimates stop going down and start going back up, you'll know it when you see the Rank climb back to a #2 (Buy) and especially a #2 (Strong Buy).
Until, then save your money for other winter fun like Vail Resorts (MTN), a Zacks #1 stock.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.
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