Fox Factory Is Worth $20/Share And A Buy; DA Davidson Sees 'Innovation Story'

In a report published Wednesday, DA Davidson analyst Andrew Burns initiated coverage of

with a Buy rating and a price target of $20. In the report DA Davidson noted, "Fox Factory's heritage is in motocross suspension products; today, however, Powered Vehicles represents only 42% of sales. FOXF's largest category is Mountain Bikes (58% of sales), where it commands a dominant share in the premium market ($2,000+ MSRP)." "FOXF has the best of both worlds: a heritage brand with broad consumer appeal and an industry leading innovator. Fox validates its product at the competitive racing level across all categories and uses this positioning to develop fruitful OEM relationships," Burns wrote. The company has maintained a strong foothold in existing categories and is "leveraging its suspension innovations into newer markets" like on-road vehicles (off-road capable trucks and motorcycles), side-by-sides, military programs, and new mountain bike price points. Fox Factory's topline and earnings growth is likely to begin accelerating entering 2016. Although 2014 and 2015 were challenging, next year could be marked with spec wins and growth in new categories. Following the recent acquisitions of Sport Truck USA and Easton/Race Face, Fox Factory's addressable market and growth opportunities "have never been greater," Burns said, while adding that the company's "best days are ahead." Fox Factory's stock valuation does not reflect "health and growth prospects of business." The shares are trading at a discount to the sports equipment peer group. The analyst believes this discount is "unjust," given the company's "favorable cash flow, profitability and growth potential; we see room for further expansion."