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Why Thor Industries Stock Just Landed an 11.5% Gain

What happened

Prices of $61 a share, $65, $66, $69, and ... $77! Every day of this week, Thor Industries (NYSE: THO) stock has climbed a little bit higher, before finally zooming ahead 11.5% in Friday trading (as of 12:30 p.m. EDT).


Image source: Getty Images.

So what

Success, it seems, begets success, and after Thor announced on Monday that it has reopened its North American assembly operations, investors have been rewarding Thor stock day after day in hopes that things will soon get back to "normal" for the Elkhart, Indiana-based RV manufacturer.

A trend like that couldn't fail to attract the attention of a publication like Investor's Business Daily, which has trained its readers to look for trends. And so this morning, IBD announced that Thor Industries stock had scored a "relative strength rating upgrade."

As the investor resource explains, "When building your watch list, [you should] look for stocks with an 80 or higher RS Rating [and] Thor Industries ... now meets that criteria, with an increase from 77 to 84 Friday."

Now what

That being said, a few words of caution may be in order. After today's surprisingly strong performance, Thor stock trades for a P/E in excess of 20. The company is a strong free cash flow (FCF) generator, throwing off more than $250 million in positive free cash flow last year (versus reported net income of only $204.5 million). Still, even valued on cash profits, the stock trades for 17 times FCF.

That's not exactly cheap given that analysts who follow Thor are predicting its profits will grow less than 5% annually over the next five years.

On top of all that, Thor is heading into a coronavirus-caused recession carrying more than $1.5 billion in net debt. Thor's going to have to sell an awful lot of RVs to whittle down that debt load, and its ability to sell RVs in an economy struggling with recession, and into a market where 30 million of its potential buyers are now unemployed, is anything but certain.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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