A Dividend Stock to Buy While It’s Still Undervalued

Polaris is having a moment: This high-quality dividend stock is up nearly 80% from its April lows. A leader in powersports that has carved out a wide economic moat, Polaris flourished during the pandemic but has struggled since, thanks to a multiyear industry downturn in demand. Sales declines have gotten smaller in 2025, though—and investors have noticed. Yet despite its recent rally, Polaris stock still looks undervalued, trading 19% below our fair value estimate. This dividend stock sports an attractive 4.7% yield, too. Polaris is one of Morningstar Chief US Market Strategist Dave Sekera’s 5 Stocks to Buy Before They Become Expensive.

Polaris is one of the longest-operating brands in powersports. We believe that its brands, innovative products, and lean manufacturing result in a wide economic moat. The company stands to capitalize on its research and development, solid quality, operational excellence, and acquisition strategy. However, its brands do not benefit from switching costs, and with peers innovating more quickly than in the past, this could jeopardize Polaris’ ability to take price and share consistently, particularly during periods of aggressive industrywide discounting—a recent concern. We think the modest market share improvement in off-road signals that the company’s competitive edge is intact, and that industry inventories at dealers are close to appropriate.

Key Morningstar Metrics for Polaris

• Fair Value Estimate: $70
• Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Uncertainty Rating: High

Economic Moat Rating

Polaris has delivered healthy adjusted returns on invested capital—averaging 17%, including goodwill, during the past five years—and we forecast it will outearn its cost of capital over the next two decades. Polaris started to build its reputation and brand by producing snowmobiles and since then has grown into a recreational and utility vehicle powerhouse. As evidence of its intangible assets, Polaris has amassed leading market share in the categories in which it operates; it holds leadership positions in all-terrain vehicles and side-by-sides and is the number-two player in snowmobiles and domestic motorcycles. We believe innovative product offerings and growth into adjacent categories have led to a scaled business with a cost advantage, evidenced by increasing volume and profits as Polaris reaches new end users.

Read more about Polaris’ moat rating.

Fair Value Estimate for Polaris Stock

Our $70 fair value estimate incorporates second-quarter results and a lower tariff impact than previously forecast for this year. Our 2025 outlook includes a sales decline of 5% and operating margin excluding financial services of 1%. As demand normalizes, our long-term growth forecast stabilizes, incorporating 3%-4% average sales growth beyond 2025. We see gross profit margin expansion of around 230 basis points over the next decade from 2024 levels, to 23%, while net income margin grows to 5%. We think that costs will stabilize and that the marketing ratio will stay around 7% over our forecast, in line with the five-year historical average. Polaris has historically generated returns on invested capital well above our 10% weighted average cost of capital assumption and should be able to maintain an average adjusted ROIC of 12% over the next decade.

Read more about Polaris’ fair value estimate.

Risk and Uncertainty

Polaris’ product lineup creates volatility in revenue and profits during periods of economic duress, since discretionary sales are more sensitive to swings in consumer confidence and the macro environment. In 2024, consumers financed 31% of the vehicles sold in the US, so changes in lending standards could prove problematic. Polaris faces integration risk if it becomes acquisitive again, as well as liability risk, since it self-insures against product liability claims. Weather is the biggest factor that Polaris cannot control; sales of snowmobiles are correlated with the amount of snowfall in any given season. The industry remains competitive, which brings the risk of a promotional environment.

Read more about Polaris’ risk and uncertainty.

Polaris Bulls Say

• Polaris has had a strong reputation for innovation, and new product lines and strategic acquisitions have supported solid performance in strong as well as difficult environments.
• Profit margins could tick up faster than we expect with a return to volume growth from the sizable and higher-margin off-road segment.
• Management is focused on being a best-in-class manufacturer. With continuous improvement at existing facilities, the pursuit of lean initiatives should support operating margin expansion when consumer demand returns.

Polaris Bears Say

• Higher inflation could affect costs, including for commodities, labor, and logistics. This could hurt profitability.
• Polaris competes with formidable brands like Harley-Davidson in motorcycles and BRP in snowmobiles and ATVs; they also innovate rapidly in an attempt to take market share.
• Business depends on credit availability at the wholesale and retail levels. The withdrawal of any financing sources, tightening lending standards, or higher interest rates could prevent some inventory from moving through the channel.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Aug. 20, 2025, unless otherwise noted.