American Outdoor Brands Reloads For Another Rally
American Outdoor Brands (NASDAQ: AOUT) has been one hot stock since its spin-off from parent Smith & Wesson late last year. The combination of America's love with shooting sports, the pandemic surge in outdoor activities, and the ever-growing threat to our second amendment rights has this company growing by high double digits. The latest earnings release leaves nothing to be desired but the stock is down 10% in its wake. In our view, today's sell-off is tomorrow's opportunity to own a fantastic American brand with a solid future ahead of it.
American Outdoor Brands Falls On Knee-Jerk Reaction To Good News
After perusing the American Outdoor Brands Q4 earnings report the only thing we can find that may have triggered the 10% decline in share prices is the fact revenue missed the consensus. The revenue of $64.50 million missed the consensus by $0.47 million which is worth 70 basis points of growth. That's not good, we admit that, but in light of the fact the company's revenue is up 49.6% from last year it's a fact that we can easily overlook. What we have here is a case of incredibly high expectations coupled with an expectation for better-than-expected results that weren’t met. There is no fundamental flaw with this company.
The company didn't break out segment data for the quarter but did say gains were driven by both eCommerce and traditional sales channels. For the full year, total sales increased 65.3% driven by a 48.6% increase in core sales channels and a 102% increase in the digital channels.
Moving down the report, the gross margins were flat at 44.4% versus last year and that may have added to market angst. Even so, the 44.4% contributed to a 340 basis point Improvement for the year that left the gross margin at 45.8%. The company's revenue strength carried through to the bottom line as well and managed to beat the consensus estimate despite the flat margins. The GAAP EPS of $0.09 beat the consensus by $0.13 and reverses a loss in the previous year while the adjusted EPS of $0.34 beat by $0.11. The salient point here is that margins are up for the year but came under pressure in the last quarter due to inflation. The takeaway is that margins came in stronger than expected as the company navigates those pressures.
The company was able to give guidance as well, and above the consensus estimates too. The revenue range of $280 to $295 thousand and the EPS range of $2.02 to $2.26 both bracket the consensus estimate with the consensus estimate in the low half of the range. We expect to see actual results come in at the high end of the range if not above guidance.
American Outdoor Brands Is A Value
American Outdoor Brands is trading about 17X fiscal 2022 earnings and 16X 2023 earnings with the guidance above target and clear momentum in the business. This provides a value verging on deep value compared to the broad market and adds to the socks attractiveness. Based on the analyst activity in the wake of the report, the community agrees with us. There've already been two notes reiterating buy positions and raising the price target to a range of $40 to $46. That implies a minimum of 18% upside and compares to the consensus target of $31.50.
The Technical Outlook: American Outdoor Brands Is Ready To Fire
American Outdoor Brands is falling hard in the wake of the earnings report but we view this as a buying opportunity. The trend is clearly up and market action is still above the key support level of $33 and the short-term moving average. Price action may move down to test support but we expect to see buyers step in very soon and possibly spark a strong bounce. Longer-term, we expect to see this stock retesting resistance at the all-time high within a few days or weeks and then breaking out to new highs later this year.
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