REV Group (REVG): A ROE Powerhouse Poised for Takeoff – Buy Before the Re-Rating

In a market dominated by short-term volatility and sector-specific headwinds, REV Group (REVG) stands out as a rare gem: a company with 22% Return on Equity (ROE)—nearly double the transportation industry's 13% average—and a 69% five-year net income growth streak, yet trading at a P/E of 8.24 (based on trailing earnings in early 2025). Despite near-term challenges in its recreational vehicle (RV) segment, the stock's valuation remains detached from its robust fundamentals. This is a call to act now, before the market re-rates this underappreciated growth machine.

ROE: The Engine of Sustainable Outperformance

REV's 22% ROE isn't just a number—it's a testament to its ability to generate profit from equity efficiently. By comparison, the transportation sector's average ROE is 13%, underscoring REV's superior capital allocation. This metric is particularly critical because ROE directly ties to shareholder returns: higher ROE means the company can reinvest profits at high returns, compounding growth over time.

REV's Specialty Vehicles division—the core of its business—has been the driving force. With a backlog of $4.23 billion (up 9.4% year-over-year), this segment is primed to deliver consistent cash flows. Fire trucks, ambulances, and other emergency vehicles are non-discretionary purchases, insulated from economic cycles. Even as the RV segment faces destocking pressures, Specialty Vehicles' dominance ensures long-term stability.

Net Income Growth: A Turnaround Machine

The numbers speak for themselves. In 2020, REV reported a $31 million net loss, but by 2024, it soared to $258 million in net income, a 739% increase over four years. Even excluding the one-time $257 million gain from selling Collins Bus, adjusted net income grew 83% annually since 2021, driven by margin expansion and operational discipline.

Valuation: A Discounted Growth Story

While the stock's P/E has risen to 23.65 as of May 2025, this reflects a rebound from its January 2025 low of 7.03—a stark reminder of its undervalued status. Compared to the sector's average P/E of 13.74, REV's current multiple is justified by its superior growth profile. The forward P/E of 14.81 (based on 2025 earnings guidance) further supports this thesis, offering a 22% discount to the sector's average.

Dividends: A Stable Foundation for Growth

REV's $0.06 quarterly dividend (annualized $0.24) may seem modest, but its payout ratio of 8.4% leaves ample room for reinvestment. With a $250 million share repurchase program authorized in 2024, the company is aggressively returning capital to shareholders while maintaining a strong balance sheet. Net debt of $108 million and $31.6 million in cash provide flexibility to navigate headwinds like inflation and tariff pressures.

The Near-Term Hurdles—and Why They're Manageable

Critics will point to the RV segment's struggles: sales fell 8.5% in Q1 2025 due to dealer destocking and soft demand. However, this is a temporary issue. The RV market is cyclical, and REV's long-term contracts with dealers suggest a rebound is inevitable. Meanwhile, the Specialty Vehicles backlog of $4.23 billion—enough to cover 2–2.5 years of demand—ensures top-line visibility.

Why Act Now?

• ROE-driven compounding: The 22% ROE guarantees that every dollar reinvested grows at industry-beating rates.
• Valuation re-rating potential: At 14.81x forward earnings, the stock is cheap relative to its growth trajectory.
• Catalysts on the horizon: Execution on its $2.3–$2.4 billion 2025 sales guidance and margin expansion in Specialty Vehicles could trigger a reevaluation.

Conclusion: A Rare Opportunity in a Crowded Market

REV Group is a value-priced growth stock with a moat in mission-critical vehicles and a balance sheet strong enough to weather near-term storms. While the RV segment's slowdown is real, it's temporary and dwarfed by the long-term tailwinds in Specialty Vehicles. At current levels, the stock offers a 22% upside to the sector average P/E, with ROE and net income growth acting as accelerants.

Act now—before the market catches on.

—The author is a financial analyst with over 15 years of experience in equity valuation and corporate finance.