Did Polaris Just Turn Into a Drone Stock?

This week was a good week to own Polaris (NYSE: PII) stock -- and the next 52 weeks could be even better.

The manufacturer of everything from snowmobiles to motorcycles to all-terrain vehicles to boats reported first-quarter earnings on Tuesday, you see, crushing analyst forecasts and reporting a $0.13-per-share profit where Wall Street expected a loss of $0.40. Quarterly sales exceeded expectations as well, growing 8% year over year to $1.7 billion, and Polaris expanded its gross profit margin by 420 basis points to 20.2%.

Polaris builds ATVs -- now also for the U.S. military. Image source: Polaris.

Wall Street reacts

Analysts praised the results, and no fewer than six separate analysts raised their price targets on Polaris stock to between $60 a share (the most pessimistic, Wells Fargo) and $74 a share (the most optimistic -- Bank of America). Curiously, though, almost all of these analysts (the exception being Raymond James) maintained only neutral or hold ratings on Polaris stock.

The news might have been good enough to win some price target hikes -- but it wasn't good enough to convince most analysts to buy Polaris stock.

Why not?

The trouble with Polaris

Two factors may explain this. First and foremost, while Polaris "beat earnings" and reported positive non-GAAP (adjusted) profits, its actual earnings per share calculated under generally accepted accounting principles (GAAP) showed an $0.83-per-share loss for the quarter.

Second and related, Polaris guided investors to expect essentially zero sales growth through the end of this year. Sales are expected to be about $7.2 billion in 2026 -- the same as in 2025. For Polaris to win higher ratings from Wall Street and more investor support, it seems the company must find a way to grow its sales faster.

Fortunately, Polaris may have a plan for that -- and it comes from an unexpected direction.

Image source: Forterra.

Uncle Sam wants Polaris

Earlier this week, Maryland-based defense start-up Forterra unveiled the new Mesa Autonomous Ground Vehicle (essentially a drone truck, rather than a drone aircraft) that it's developing for the U.S. Army -- with help from Polaris.

Guided by software and capable of maneuvering autonomously even in areas where GPS signals are jammed, Mesa, according to Forterra, is based on a "factory modified Polaris Ranger XD 1500 all-terrain vehicle."

Although the photo Forterra provided shows Mesa to be about twice as long as a base Ranger XD 1500, Forterra explains that Mesa is "built in direct partnership with Polaris" and that "every vehicle comes off the same market-leading production line that delivers" Polaris's other vehicles.

Translation: Forterra is working with Polaris to build this new military robot. The more successful Forterra is in selling it, the more it will directly benefit Polaris through improved sales and (ideally) a return to positive profits.

Keep an eye on Forterra

As for Polaris's partner in this venture, investors might also want to keep a close eye on Forterra, which is starting to seem like a real up-and-comer (even if most people have never heard of it).

Defense website Tectonic calls Forterra "a giant in the ground autonomy game" and earning praise for its AutoDrive vehicle autonomy system, which includes all the hardware, software, and sensors necessary to convert essentially any existing vehicle into an autonomous ground drone. In addition to Polaris, Forterra has also teamed up with big-league defense contractors such as BAE Systems, General Dynamics, Oshkosh, and Rheinmetall in Germany to produce autonomous ground vehicles.

The company also recently hit unicorn status, raising hundreds of millions in venture capital financing and achieving a private market valuation of $1.1 billion. With any luck, an initial public offering may not be too far off.

Bank of America is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends BAE Systems. The Motley Fool has a disclosure policy.