Gap In Share Prices

Several companies that produce the highest-end bikes or parts, such as Italy's Pinarello and Bianchi, are private, leading fund managers to gravitate toward the publicly traded alternatives. As a result, portfolio managers have been moving into companies that produce higher-end bikes even as their returns differ.

Giant, for example, has seen its shares jump 23 percent over the last six months, including a 7 percent gain since the start of January. Shares of Merida are up 14 percent over the same time, with much of the gain coming this year so far.

Yet, Canada's Dorel Industries has seen its shares fall 1 percent in the year to date, with a 13 percent jump over the last six months. Dorel gets two-fifths of its revenue from its cycling and leisure division, with a mix of premium brands from Cannondale and GT, as well as mass-market brands like Schwinn and Mongoose.

The surging U.S. dollar and decline in the euro - which accounts for about 30 percent of sales - prompted the company to say that currency costs are "expected to have a significant negative effect" on its earnings this year.

Dorel's price drop is prompting some fund managers to buy.

"Looking at it long term, the cycling division is one area that we think will continue to see material gains and margin improvements," said one fund manager who recently added shares of Dorel to his portfolio, but did not want to use his name because his trades were not yet public.

Danielle McCoy, an analyst at Wunderlich Securities, initiated coverage of the company with a buy rating. She has a price target of $52 Canadian dollars for the stock, 33 percent higher than its closing price Thursday of $39.08.

Part of the reason for her rating is that the company recently acquired a subsidiary of Hong Kong's Lerado Group Holdings Inc that makes products such as car seats and strollers. The purchase will help it expand margins by lowering supply costs.

Dorel is also focused on expanding its premium line of bicycles, which are already higher-margin, she said.

"We continue to view the acquisition of Lerado as a potential game changer," McCoy said.

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