As mentioned in the title, I saw this mentioned on the website and was curious as to what people thought about the DD. TLDR - potential to be valued at $72/s , if they can figure out their debt situation. Pasted below!
**Executive Summary**
Fox Factory is a highly respected company with premium brands in several outdoor sport categories primarily related to suspension systems for high end mountain bikes, off-road trucks (e.g. F-150 Raptor) and powersports vehicles. The company, however, is cyclical and after experiencing a massive boom during covid is now still working through its painful, post-covid hangover. What’s bizarre about FOXF is that while its end markets have behaved in a classical cyclical pattern, its multiple hasn’t. The multiple strangely expanded on the upswing with this cycle (it traded with a 40x EV/EBITDA in 2021 right as it was most cyclically overearning) and now it’s compressing on the downswing (trading at \~7x EBITDA on cyclically depressed sales and EBITDA margins). The net result has been the stock collapsing over 90% from a peak of $187 to $15 currently.
I think there’s probably three reasons why the market isn’t expanding the multiple as sales and earnings cyclically compress. First, I think poor disclosure and a lack of industry data make the cyclical nature of Fox’s business less obvious than it should be. Second, I think mismanagement of this downcycle has left investors skeptical of the margin recovery potential. Third, I think the currently high debt levels (incurred, stupidly, in 2023 to buy a high quality but random baseball bat company called Marucci) seem like a serious risk to the company. Below I’ll go through some uniquely sourced data showing that key end markets (powersports and bikes) are indeed meaningfully cyclically depressed. I’ll discuss why there’s a clear opportunity for management to improve margins via SG&A cuts. And I’ll lay out why the Marucci debt will seem like a non-issue for the company at all in 13 months.
Numbers: I think the company will do about $2.90/sh of FCF in 2026 and will delever to 2.3x net debt/ebitda by the end of 2026 I think the relief from a debt paydown is likely enough to drive a rerating to 9x EV/EBITDA and a doubling of the equity in 13 months. From there, I think investors will eventually start to try to look out to what midcycle earnings will be when end markets recover and margins return to appropriate levels. My base case is that the company can do $290M of normalized EBITDA if trough-ish end markets in Powersports and Mountain Bikes recover to pre-covid levels and management does the restructuring necessary to take margins to 17.7% (below their 19% midcycle target). If the stock trades at 11.5x this midcycle EBITDA level (well below its historical average of 16x) we would have a $72/sh stock in 2-3 years, nearly a 5-bagger from current levels.
**Overview of Fox Factory**
Fox Factory makes aspirational products that are used by elite athletes and loved by consumers. The company started as manufacturer of shocks for professional motocross and offroad truck riders. They then expanded into making suspension systems for Mountain Bikes (MTBs) in the 1990s and Powersports vehicles (i.e. ATVs and Side-By-Sides) in the early 2000s. Through a series of acquisitions in the 2010s they moved into selling other equipment used to upgrade offroad trucks (e.g. racing wheels and lift kits) including two businesses that take trucks straight from the OEMs and upgrade them with branded packages of aftermarket parts (creating an “upfit” truck) that they sell to dealerships. The final piece of the company was added in late 2023 when they incongruously bought a baseball bat maker called Marucci. A more detailed corporate history can be found in the Appendix of this pitch.
The common thread between all of Fox’s businesses is that they make high quality, high performance products that are used by the top professionals. Fox shocks dominate the suspension market for serially produced offroad trucks and powersport vehicles. Fox forks are the stronger half of a duopoly in high end suspensions for the mountain bike market (see chart below). Marucci’s brands have nearly 50% market share among MLB players (see chart below). And they own leading brands in offroad racing wheels (Method), lift kits (BDS) and upfit trucks (Shelby). As their former Senior Director of M&A put it to me: “If you go into the real world where people us the brand, people outright love Fox. Be it on the Fox Truck side or the Bike Side. People love this brand.” You can go to any MTB or Off-Road truck online forum to confirm this, but I’ve also included a few illuminating quotes on the strength of the company’s brand in the Appendix as well.
**Public Company Histor**y
Fox Factory IPOed in 2013 and their first 7 years as a public company were marked by tremendous financial success. The company was able to leverage its premium brand and technology to take substantial share in all their markets, especially in off-road trucks where their position on the wildly successful Ford F-150 Raptor made them the go-to suspension supplier for other high trim, offroad trucks including the Toyota Tacoma TRD Pro, the Jeep Wrangler Rubicon, and the Fox Ranger Raptor. This drove organic sales growth of \~13% from 2013-2020 and the stock traded with an average EV/EBITDA of 16.5x during this period. It was written up as a short twice on VIC over this period. Once in 2017, when it was trading at 18x EV/EBITDA on the thesis that growth would slow as PVG ran out of new OEM truck platforms to add. This pitch had a $31.75 target price valuing it at 13x EV/EBITDA. It was written up again in 2020 when it was trading at 17.8x EV/EBITDA on the thesis that it was overvalued and covid would drive a drop in sales for their more discretionary products. This pitch had a 10-12x target EV/EBITDA multiple.
Covid, of course, had the opposite effect of what many of us initially expected and it took Fox’s growth to a new level. Forced to look for outdoor activities, consumers quickly bought up all the inventory of MTBs and powersports equipment in 2020. Seeing crazy demand signals and desperate for inventory, retailers and dealers responded by aggressively ordering from OEMs, who were unable to ramp up quickly enough to meet this demand in 2021 because of supply chain issues. The result was a massive boom in production for bikes and powersport vehicles (and thus demand for Fox’s shocks) in 2021 and 2022 and then a huge glut of inventory across the channel in 2023. Similarly, Fox’s upfit truck business benefited from a surge of demand in 2021 and 2022 driven by dealers hungry for inventory to sell in a supply constrained world and a consumers happy to buy tricked out trucks in a zero interest rate environment. The result, unsurprisingly, was a huge surge of demand for Fox products across several end markets resulting in organic sales growth of \~43% in 2021 and 23% in 2022 and massive rerating of the stock to nosebleed levels (it hit $187, 40x EV/EBITDA in 2021)! The stock was written up on VIC for a third time in mid 2021with a pitch that absolutely nailed the peak valuation on peak sales. At the time it was trading at around 38x 2022 EPS (\~25x EV/EBITDA) and the author, ril1212, thought that EPS would collapse to about $2.00 in 2023 and that it should trade at 30x trough earnings (\~15x EV/EBITDA) equating to a $60-80 stock.
Predictably, the covid boom across Fox’s end markets was followed by a massive bust as retailers and OEMs both overordered in the 2021/2022 resulting in a glut of inventory by 2023 just as interest rates were rising and impact of covid on outdoor sports participation was receding. Fox felt the bust in its bike end market first, where its sales collapsed 45% in 2023. Its powersports and upfit truck demand markets then fell off their cliffs in 2024. These businesses all have 30-50% gross margins but higher incremental margins because Fox does its manufacturing in-house for all its businesses except Marucci (and hence has a lot of fixed costs in its COGS). The result is that EBITDA has collapsed from $322M in 2022 to \~$167M in 2025 (which includes an additional $65M of acquired EBITDA since 2022, of which about $50M was from Marucci). Below are Fox’s Financials for the past 12 years.
What emerges is a pretty clear story of a normalized “pre-covid” period, a boom during covid, and a huge bust post-covid. What’s bizarre, however, is that while this is a classic cyclical pattern for a durable consumer goods company, for some reason the stock hasn’t traded like a cyclical stock. Strangely, the multiple expanded when sales were unsustainably high during the covid splurge and now it’s contracting at the trough, exactly when it should be expanding to account for an inevitable rebound in its margins and key end markets.
I think there’s probably three reasons why the market isn’t adjusting the multiple appropriately: 1) poor disclosure and a lack of industry data makes the cyclical nature of this business less obvious 2) mismanagement of the business during this downcycle has left investors with little confidence in the margin recovery potential and 3) Marucci debt introduces some existential risk to the company. I’ll walk through each of these below, but my thesis – when you put them all together – is that the current situation is basically the exact inverse of when this was written up on VIC in 2021 by ril1212. Back then, market was applying a peak multiple on peak earnings and now it’s applying a trough multiple on trough earnings. Eventually sales and margins will normalize and when they do a relatively conservative multiple can comfortably get you to a $60 to $80 target price – exactly the target price from when it was pitched by ril1212 as a short 4.5 years ago.
**Important Key End Markets are Depressed**
While looking at Fox’s financials makes it clear that its sales and end markets have collapsed since the covid peak, it’s almost impossible to tell that some end markets are actually seriously depressed vs. their pre-covid levels because of Fox’s M&A activity, price hikes, and share gains. As a result of these actions, total company sales will finish 2025 at around $1.45B, nearly double the $750M the company did in 2019 despite the fact that several of their end markets are well below 2019 levels.
One good example of this can be see in Powersports. In Powersports, Fox sells suspension systems to very high end side by sides (e.g. MSRPs >$30K) largely focused “sport” use. This business is reported in the PVG segment that also houses their suspension systems sold to the offroad truck market. PVG sales are up about 60% since 2019 from $300M in 2019 to $450M in 2025) but this was largely driven by share gains in offroad truck (their sales to Ford alone grew from $83M in 2019 to $209M in 2024) and the acquisition of Marzocchi, a motorcycle suspension company with $40M. Underneath the hood, their Powersports business, which is now only 27% of sales is deeply depressed because the industry is still dealing with the hangover from the covid glut. While not visible in Fox’s numbers, it can be seen clearly in the industry numbers. Below are the annual US registration numbers for the Polaris RZR and the Can-Am Maverick. Polaris and Can-Am are Fox’s major OEM customers in this segment (although they’re winning new ones) and the RZR and Maverick are the two “sport” models where Fox shocks are a must have on the higher trims. As you can see from the registration data, 2025 retail sales of these models are down 41% from their 2019 retail sales. It’s worth noting that while many side by sides are B2B purchases, the models with Fox shocks are pure leisure products which led to a boom and bust worse than the overall power sports industry. A return to 2019 level sales of RZR and Maverick models, would mechanically grow Fox’s Powersports sales by nearly 70%.
Another clear example can be seen in Fox’s bike business. Fox reports their bike business in their SSG segment which also houses Marucci. SSG sales are up from $300M in 2019 to \~$510M in 2025. While not explicitly disclosed, based on their comments since acquiring Marucci you can pretty easily estimate that its sales are in the $190-200M range, suggesting that Bikes will do $310-320M in 2025. Because this 2025 sales number is similar to Fox’s 2019 bike sales number, I suspect analysts are willing to jump to the conclusion that sales are not currently depressed. What that analysis is missing, however, is that there were massive price hikes for Fox’s products over the past six years. One major Fox OEM customer told me that Fox raised bike suspension prices 12-18% in 2021 alone! If you deflate Fox’s current sales to adjust for the price increases over the past 6 years, I estimate that Fox’s bike sales would actually be about 23% below 2019 levels. In other words, the volume of bike suspension systems Fox is selling in 2025 is likely about 23% below 2019 levels.
One way we can sanity check this assertion is by looking at total bicycles produced globally. While good industry wide data isn’t available, Giant Bicycles accounts for about 30% market share and actually publishes very helpful data on their total bicycles produced each year (not just bicycles sold) in their annual reports.
The pattern in Giant’s overall production numbers, unsurprisingly, looks pretty similar to the pattern in Fox’s price adjusted numbers. Giant’s 2025 production levels are actually a bit more depressed vs. 2019 levels (down 29%) either suggesting that Fox has gained some share in the industry (seems likely) or that MTBs have been more resilient than overall bicycle production (seems a bit less likely).
I’ve done deep work digging into Fox’s other key cyclical end markets, namely upfit trucks and offroad trucks. The data from upfit trucks was not easy to collect and only goes back to 2022. It paints a picture of a business that has been decimated since its 2023 peak, but not one I would feel comfortable describing as cyclically depressed.
Finally the market for very high trim level offroad trucks has been surprisingly consistent.
I would describe 2025 levels as likely slightly depressed for off-road trucks, largely driven by production/supply issues including a fire at a Novelis plant that is impacting Ford’s ability to produce F-150s in 4Q (a source of FOXF’s 2025 guide down). Interestingly, beyond just a normalization in supply it seems like Ford is likely planning on further expanding production of its Raptor products in 2026 in response to the lifting of compliance restrictions. When asked about the impact of the Trump admin’s EPA compliance policy changes at a recent conference the President of Ford Blue replied “It allows us to have a little more flexibility in our production in terms of what we’re able to build. If you take a look at some of our off-road derivatives, F-150 Raptor or Bronco Sasquatch packages…Those are high-margin series that we’ll be able to build more of that we wouldn’t have been able to in a more constrained regulatory environment.”
**This Downcycle Has Been Mismanaged**
Another reason for Fox’s surprisingly low multiple might be a lack of confidence in management’s ability to actually return the company to normalized margin levels. Given management’s performance so far this downcycle, that is a reasonable concern. Even though the post-covid downcycle seemed pretty predictable and was well anticipated by VIC members, unfortunately, management seems to have bee consistently caught off guard during this downcycle. This can perhaps be best illustrated by comparing the company’s initial EPS guidance for each of the past three years with their actual results.
They’ve missed their initial guidance by an average of 40% over each of the past three years! As a result of being perpetually too optimistic about their end markets and sales outlook, the management team hasn’t taken the hard cuts necessary to hunker down and preserve cash flow and profitability. This can clearly be seen by looking at the company’s SG&A which is up \~$80M from 2022 despite sales being \~$150M lower. The result is that SG&A as percentage of sales has grown from \~16% in the 2014-2022 period to over 23% currently.
The Marucci acquisition has slightly skewed the above number because it’s a business with structurally higher gross margins and SG&A than Fox’s core business, but if we make a few adjustments to remove Marucci the conclusion is directionally the same – Fox’s SG&A as percentage of sales is \~500 bps higher than normal and higher in absolute levels than it was during the peak years.
**Marucci debt is an albatross on the company’s neck**
The final reason for Fox’s low multiple is likely concern around its debt. While the margin performance this downcycle for Fox has been disappointing, the biggest mistake management made this cycle was leveraging up the company to buy Marucci in late 2023. While Marucci is undoubtedly a great brand and a high quality asset, the deal has little strategic rationale and levered up Fox’s balance sheet right as the companies end markets were crashing out. The result is that a company that had a pristine balance sheet for 12 years now finds itself levered nearly 4x and makes the stock feel like it has potential existential risk if end markets and/or margins continue to deteriorate.
**My Thesis**
From here, I believe that FOXF is extremely compelling. At $15, the stock is trading at a valuation that implies that either there’s a reasonable chance of bankruptcy or that the margins are structurally impaired. I believe neither is likely. At the end of the day, consumers still love the Fox brand and their products. They just operate in cyclical end markets, have high operating leverage, and have a management team that hasn’t done nearly enough (to date) and preserve margins. In short this is a cyclical business that is substantially underearning because several of its end markets are depressed and because its management team hasn’t been aggressiveness with right-sizing the cost structure.
I think the stock collapsing to $13 is probably one of these events where things have finally gotten so bad it’ll force management to realize that they need to change course if they want to keep their jobs. I think we saw at least a little hit that management is starting to realize the severity of the situation when the CEO guided to 2026 capex dropping to \~$15M in 2026 (\~1% of sales) from $35-40M in 2025 (this was the only piece of 2026 guidance he gave). I see two legs of the Fox story from here. First, a re-rating to a more appropriate multiple once the market realizes that their debt situation is manageable. Second, a meaningful rally to a more full valuation based on normalized earnings once we start to see some margin expansion and recovery in their end markets.
**Fox Factory’s debt situation is manageable**
While Fox Factory’s debt situation looks superficially scary today, I believe it will look much better by the end of 2026. The first thing to note is that Fox recently renegotiated their credit agreement for the fifth time at the end of October and their nearest (and only) maturity is now basically five years away in October 2030. That is a lot of runway to generate cash and they could always just sell off Marucci (it was bought in a competitive process in 2023 with other PE buyers) to pay down the debt between then and now.
The second thing to note is that Fox generates the vast majority of their FCF in 4Q as they consume working capital in the first three quarters of the year and then release it in 4Q. They’ve consumed $48M of NWC YTD. If they release this amount in 4Q, they’ll generate about $70M of FCF in 4Q if they do the mid-point of their guide. This would reduce their net debt from $622 to $553.
The third thing to note is that even if we don’t get an earnings recovery in 2026, free cash flow should be up materially because of the capex cut and debt paydown. Their most recent guidance implies about $170M of EBITDA in 2025. 2026 should likely be better for several reasons including 1) a recovery of the lost F-150 related sales as the Novelis plant comes online and Ford makes-up lost production 2) a recovery in their depressed Powersports markets and 3) hopefully some cost action on SG&A as they realize the need to protect margins. My guess is that we can get \~$25M of EBITDA growth from the above factors, bringing us to about $195M of EBITDA in 2026. Consensus is a little below this at around $186M. Interestingly if we just use consensus figures and we plug in the lower capex and likely lower interest expense (from less debt and lower rates) we get to a pretty flashy \~$120M or $2.90/sh of Free Cash Flow in 2026.
If we roll this forward, it means that they would end 2026 with $433M of net debt on $186M of LTM EBITDA, a 2.3x leverage ratio that pretty quickly becomes a non-issue. If the stock re-rates to 9x LTM EBITDA (vs. long term average of 16x) by the end of 2026 because the existential risk is off the table, it would be about a double from here.
**Normalized earnings power**
At some point the narrative for Fox will shift away from risk and towards upside. When it does people will start looking at Fox’s depressed margins and end markets and try to value it on “normalized earnings.” When they do I think they’ll see a business that could easily do $290M of EBITDA when its depressed end markets come back to more normalized levels. I arrive at this conclusion by looking each of Fox’s divisions and trying to estimate what midcycle sales could be with a recovery to pre-covid end market levels and what margins could look like with a little operating leverage and restructuring. Below are the details of my assumptions.
**Valuation**
Interestingly, if you value the stock at 11.5x (the low end of its pre-covid valuation) on normalized EBITDA and assume that it gets there after two years of debt paydown you end up with a \~$72/sh stock, right in the midpoint of the target price range that the ril1212’s 2021 write-up had for the stock when it was trading at $150. This seems to me like a reasonable price target looking out 2-3 years.