What Makes Fox Factory Holding Corp. (FOXF) an Attractive Opportunity?
Baron Funds, an investment management company, released its “Baron Small Cap Fund” fourth-quarter 2023 investor letter. A copy of the same can be downloaded here. Baron Small Cap Fund had a strong fourth quarter and a full year in 2023, both on absolute and relative bases. The fund was up 12.64% (Institutional Shares) in the fourth quarter and appreciated 27.19% for the year. This was essentially in line with the performance of the Russell 2000 Growth Index (the Benchmark) in the fourth quarter, which was up 12.75% and outperformed the 11.69% returns of the S&P 500 Index. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Baron Small Cap Fund featured stocks like Fox Factory Holding Corp. (NASDAQ:FOXF) in the fourth quarter 2023 investor letter. Headquartered in Duluth, Georgia, Fox Factory Holding Corp. (NASDAQ:FOXF) is a ride dynamics products manufacturer. On February 26, 2024, Fox Factory Holding Corp. (NASDAQ:FOXF) stock closed at $48.79 per share. One-month return of Fox Factory Holding Corp. (NASDAQ:FOXF) was -24.31%, and its shares lost 58.48% of their value over the last 52 weeks. Fox Factory Holding Corp. (NASDAQ:FOXF) has a market capitalization of $2.047 billion.
Baron Small Cap Fund stated the following regarding Fox Factory Holding Corp. (NASDAQ:FOXF) in its fourth quarter 2023 investor letter:
"We more than doubled our position in Fox Factory Holding Corp. (NASDAQ:FOXF), following its third quarter earnings release, which we believe created an attractive buying opportunity. Fox is a manufacturer of premium components for high-end bicycles and powered vehicles (side-by-sides, on-road trucks with off-road capabilities, all-terrain vehicles, etc.). During the third quarter, Fox’s auto business was negatively impacted by the UAW strike, which limited sell-in of their suspension products to OEM customers and effectively shut off supply of chassis for their aftermarket re-styling business. Management also set low expectations for recovery (from the COVID-driven pull-forward effect on demand to today’s oversupply in the retail channel) of the bike business in 2024. The challenges in the powered vehicles group are short term in nature, and we believe the off-road and upfitted truck end markets have a long runway for growth.
Additionally, Fox announced its sizeable acquisition of Marucci Sports, a high-end manufacturer of baseball equipment. This is a new category for Fox’s specialty sports group, which was previously only bikes, and investors were spooked by the headlines, as Marucci is primarily a baseball bat business perceived as a low-growth category lacking differentiation. We spent time meeting with Fox management and the founder of Marucci and believe Marucci has several actionable opportunities to continue to capture market share in the baseball category, continuing its impressive growth trajectory (at 25%-plus EBITDA margins). While Marucci is not directly related to Fox’s other businesses, the companies share complementary cultures as a special enthusiast brand operating at the highest end of its market. The deal is immediately accretive to top and bottom lines, offers further opportunities in the form of engineering and sourcing synergies (aluminum and composites, for example), and we are confident in management’s track record of generating successful returns from M&A outside of its legacy core shock and suspension business. We view Fox to be a high-quality, well-managed business that is fighting through some near-term issues. We were excited to buy more at what we believe is a cheap multiple."
A cyclist in full gear on their mountain bike, the Performance Cycling Components visible.
Fox Factory Holding Corp. (NASDAQ:FOXF) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Fox Factory Holding Corp. (NASDAQ:FOXF) was held by 22 hedge fund portfolios, up from 14 in the previous quarter, according to our database.
We discussed Fox Factory Holding Corp. (NASDAQ:FOXF) in another article and shared Polen U.S. Small Company Growth Strategy's views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
