Paige Ellis

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Recreational vehicle maker BRP Inc.’s stock is as low as its ever been relative to its enterprise value, making it attractive for investors despite supply-chain issues and fears of an economic slowdown, according to a Bay Street analyst.

“BRP will continue to face supply chain issues in the coming quarters, but we believe these challenges as well as market concerns over potential end-market softness are already more-than reflected in the share price,” wrote National Bank of Canada Analyst Cameron Doerksen in a May 25 note to clients.

His 12-month price target of $136.00 per share implies a 47 per cent upside to the company’s current share price from the end of Wednesday’s trading session.

The Quebec-based company, previously known as Bombardier Recreational Products, was a beneficiary of COVID-19-related travel restrictions over the past two years. Demand for outdoor recreational products soared as consumers, eager for a thrill but unable to freely venture outside their country’s borders, snapped up Ski-Doo snowmobiles and Side-By-Sides all-terrain vehicles.

But BRP’s stock pulled back following easing travel restrictions eased and mounting supply chain disruptions. It’s down 27 per cent from hitting a peak of $125.59 on the Toronto Stock Exchange in Sept. 2021.

For Doerksen, the selloff has only made BRP’s stock more attractive, particularly in light of still-robust demand.

“At the end of [the fourth quarter], inventory levels at BRP’s dealers were down 60 percent versus two years ago, so re-stocking demand should support solid wholesale revenue for BRP well into 2024, even if retail demand were to slow materially,” he wrote.

He also pointed to BRP’s product launches, including the planned 2024 debut of an electric motorcycle, as future revenue drivers.

“BRP’s valuation is now lower than the trough-like levels last seen in late-2018 and early-2019 when the market was concerned about a downturn in the powersports market (which did not materialize),” Doerksen wrote.

BRP, however, has warned that the still on-going supply chain challenges have made it hard to meet demand.

In the company’s most-recent quarterly report, the disruptions have “limited the company’s ability to replenish dealer inventories thereby limiting product availability in the network.”

And handwringing over the economy could prompt consumers to pull back on discretionary spending – particularly for big-ticket items.

“These are high-end discretionary toys,” Andrew Pyle, investment advisor and portfolio manager at CIBC Wood Gundy, said in a phone interview with BNN Bloomberg. “Overall economic health is the biggest factor. Do [consumers] feel comfortable? Do they feel their jobs are safe?”

BRP is covered by 19 analysts, 17 of whom have a buy rating on the stock and two with a hold rating.