Its portfolio of brands comprises Airstream, Bison, CrossRoads, Dutchmen, Jayco and Starcraft, among others. In North America, Thor operates controls a 50% market share in a near duopoly with Berkshire Hathaway-owned Forest River, which sports a 30% market share. Oddly enough, both companies are headquartered in Elkhart, Indiana. 

Chart THOR Industries, Inc.

Thor’s blueprint is one of remarkable expansion, capital efficiency, counter-cyclical investments and financial standing — a direct result of both an attractive business model and the founders’ aversion to debt. Revenues, cash-flows, profits and dividends have all grown at an impressive clip over the past twenty years.

Thompson and Orthwein got their start in the recreational vehicles business as complete outsiders when, in the 1970s, the industry fell out of favor due to high gas prices. A few years later, the pair formed Thor to purchase the venerable but money-losing trailer brand Airstream. 

They turned it around and then undertook to consolidate the market, in addition of venturing into the bus and ambulance manufacturing businesses before reversing course — these two divisions were eventually sold  to focus exclusively on recreational vehicles.  

Mr. Thompson passed in 2009. The company subsequently repurchased his stock from the family estate in a private transaction that valued their shares at $29. Eight years later, following the two massive acquisitions of supplier Postle Aluminum and trailer manufacturer Jayco, Thor's shares traded north of $150.

Thor’s decentralized business model is surprisingly undemanding in capital. Manufacturing is outsourced — the company just handles the assembling part — and capacity quick and inexpensive to adjust, for 90% of workforce is contracted. 

Production of new units starts on dealer order to avoid carrying inventories and the company does not finance dealer purchases. As a consequence, free cash-flow is plentiful and allows for a balanced mix of dividends, share buybacks — when appropriate — and acquisitions. 

In 2019, Thor completed the purchase of German recreational vehicles manufacturer Erwin Hymer — the leader in Europe with a 30% market share. Erwin Hymer will also open the doors of China, where it already operates through its joint-venture with Lingyu, to what is became a global, undisputed industry leader. 

This is where the wonderful story comes to a tipping point, for this transformative deal occurred against a troubled backdrop. Right after the takeover, shipments leveled off for the first time since the financial crisis, and Thor’s revenue declined by almost 30% in the first six months of fiscal 2019. 

Meanwhile, a massive fraud was uncovered at Erwin Hymer’s North American subsidiary — leading to its exclusion from the scope of acquisition. 

Because substantial leverage has been required to finance the purchase — up to $1.6bn of debt now burdens the balance sheet — investors feared an ill-inspired move at the peak of the cycle. This perfect storm sent the shares from $150 down to $50 in a matter of twelve months, and then came the pandemic.

The latter, however, had only a limited impact, as it didn't prevent Thor from delivering $400mil in cash earnings — a.k.a free cash-flow — in 2020. Note that GAAP accounting significantly understates the company's true earning power, as the heavy amortization expense inherited from the buyout of Erwin Hymer — a non-cash charge — weights on the income statement. 

Provided that things turn out as analysts predict, the combined company is expected to deliver $12bn in revenue by next year and, per management’s comments, provide for substantial synergies in technology and cost-cutting. Following a year of lockdowns, outdoor leisure activities could indeed experience a significant boost in demand. 

At its current price of $130 per share, assuming a 5% operating margin and $12bn in sales worldwide, Thor now trades at a multiple of x10 earnings before tax, amortization and interest — i.e EBITDA, a yardstick that makes sense here given the capex-light nature of the business — on an enterprise value basis. 

Assuming the successful completion of synergies and a good momentum in China, and adjusting a pro forma model with revenues of $12bn and an operating margin of 8%, this multiple would come down to the x7-x8 range — a valuation that may heavily discount a leading market position and the resulting competitive advantages, plus the growth prospects of the combined enterprise. 

This EV/EBTIDA approach is valid if one believes that Thor could represent a credible target for a large private equity house. After all, Mr. Orthwein and the old guard will soon retire. On a pure bottom line basis, once again provided again that things turn out as analysts expect, Thor could deliver cash earnings of about $700mil in 2022, and end up virtually debt-free before 2025. 

This, compared with a market capitalization of $7.6bn, may provide a compelling entry-point to growth-oriented investors with a bullish view on recreational vehicles, the merits of the combined enterprise, and of course the commercial prospects in China.

Thor is one of MarketScreener's latest investments in its U.S. portfolio. Beyond the fundamentals, the underlying intent is to profit from the fortuitous momentum that for the last few weeks has boosted the valuations of all listed companies specialized in outdoor leisure activities — in a similar manner with MarketScreener's highly rewarding bet on Malibu Boats.