Buy Alert: Fox Factory Holdings (FOXF)

By Jim Pearce • August 7, 2017

TRADE INSTRUCTIONS
Date: August 7, 2017
Name: Fox Factory Holding Corp.
Symbol: FOXF (NasdaqGS)
Type: Open
Limit: Buy below $39

TRADE TARGETS
Holding Period: 3 months
Target Return: 10.3%
Annualized Return: 41.2%
Target Price: $43
Stop Loss Level: $34

COMPANY DESCRIPTION
Fox Factory Holding Corp., headquartered in Scotts Valley, California, designs, engineers, manufactures, and markets ride dynamics products worldwide. The company offers front fork and rear suspension products for mountain bikes and road bikes; and powered vehicle products for side-by-side vehicles, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles. It also provides mountain and road bike wheels, and other performance cycling components, including cranks, bars, stems, and seat posts, as well as aftermarket products to retailers and distributors. Link to company website.

TRADE RATIONALE
I must admit, my idea of an enjoyable bike ride does not include careening down the side of a mountain to see how many trees I can avoid hitting. But apparently there are a lot of other folks who like to do just that, which has greatly increased demand for the type of biking (plus motorcycle and snowmobile) equipment manufactured by Fox Factory as evidenced by its most recent quarterly earnings report.

Sales were up 18% on a YOY (year over year) basis in the second quarter, while adjusted EPS grew by 22% thanks to a 70 basis points improvement in gross margin. Its share price jumped one dollar on the news, which is nice little gain but our Rapid Profits Matrix thinks FOXF is worth another 10% more than that based on the way other momentum stocks are currently being valued in the stock market.

During four of the past five years FOXF has increased earnings by a greater amount than the year before, which has accelerated during its two most recent quarters. Its very high relative strength reading of 93 suggests the stock has sufficient momentum to carry it into the low/mid-40s over the next quarter.

NOTE: This stock is optionable, but trades on thin volume so use limits when placing options orders.

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Jim Pearce

09/27/17 ‐ 2:12pm ET September 27, 2017 at 2:12pm ET

FOXF is now trading above my target price of $43, so I will probably raise its stop price tomorrow if it holds up through today’s close. Options traders may want to consider closing out profitable call positions now.

Dramatic License

09/27/17 ‐ 2:48pm ET September 27, 2017 at 2:48pm ET

Jim, with the urge to consider selling on the two listings (at least for options traders), do you see the correction happening soon? You have mentioned it before, and I’m still figuring out my exit before it happens.

09/27/17 ‐ 2:52pm ET September 27, 2017 at 2:52pm ET

I see the correction occurring if/when the U.S. and North Korea get into any kind of armed conflict, which is impossible to predict but could be any day given the heightened rhetoric. That’s why I strongly encourage the use of stop orders as an exit strategy if you elect to remain in a position that has already achieved your profit target.

09/27/17 ‐ 2:53pm ET September 27, 2017 at 2:53pm ET

Thanks, Jim.

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