Savaria Corporation (TSX:SIS) is in the business of designing and manufacturing mobility products, including stair lifts, home elevators, and wheelchair lifts. The company does a great service for the niche market it serves; however, the stock has gotten really frothy over the past few years, and there’s an insidious headwind that could send shares back to more reasonable levels over the medium term.

Fellow Fool contributor Brad Macintosh did a terrific job shedding light on the relatively unknown company in his previous piece, noting that the firm is both recession-proof and provides a means for investors to get next-level growth. The ageing baby boomer population is expected to remain a long-term tailwind for the company, as age brings forth a rise in mobility issues; however, at these levels, it appears that this tailwind is already baked in to the share price, and then some.

The stock trades at a 30 forward P/E multiple, a 5.1 P/B multiple, a 3.9 P/S multiple, and a 36.4 P/CF multiple, all of which are substantially higher than the company’s five-year historical average multiples of 25.5, 4.2, 2.1, and 22.7, respectively. The ~2.1% dividend yield is also lower than the historical average.

Since 2016, the stock has more than tripled, and while it appears the momentum is unstoppable, the re-entrance of a European competitor into the North American mobility market could spell big problems for Savaria, according to Alex Ruus, portfolio manager at Arrow Capital Management.

Given that Savaria has a narrow moat around its niche market, there’s not much it can do with regards to a market disturbance caused by a competitor that’s looking to steal Savaria’s slice of the pie. A dent in the company’s top line can be expected over the medium term. This, in turn, could cause the stock to plunge back to levels that are more in line with the company’s historical averages.

Bottom line

Savaria has been a terrific multi-bagger over the past few years. If you’ve doubled up, it can’t hurt to take your original investment principal off the table, so you can play with the house’s money.

I think the stock has run above and beyond what’s considered realistic, and while there’s a great deal of long-term growth to be had, I suspect the company’s medium-term performance may be dampened given the disruptive impact from the re-entry of a European competitor.

A much better entry point could be on the horizon, so prudent investors keen on the name should add the stock to their radar for now.

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