American Outdoor Brands Is A Screaming Buy

No Surprise, American Outdoor Brands Blows Past Consensus

When Smith & Wesson Brands, Inc (NASDAQ:SWBI) reported earnings two weeks ago the company smashed through the consensus. The company’s results were supported by robust demand across all segments that included a partial quarter for recently spun American Outdoor Brands. That’s why it’s no surprise American Outdoor Brands (NASDAQ:AOUT) also saw a blow-out quarter.

The company is supported by a combination of factors that include social-distancing trends and a massive uptick in gun ownership that bodes well for the entire industry. The difference between SWBI and AOUT is simple, where SWBI makes the guns AOUT makes all the gear and equipment gun owners, hunters, campers, and outdoor enthusiasts need to maximize their experience.

We believe we're witnessing a new foundational level of consumer participation in outdoor activities, an interest towards personal protection, and an interest in adjacent home-based hobbies that surround outdoor adventure, creating meaningful, long-term growth potential for our business well beyond 2020.  Continued entry into new, larger addressable markets through our 'Dock & UnlockTM' strategy has begun to bear fruit as our brands progress along their transition from 'Niche to KnownTM',” said CEO Brian Murphy in the press release.

American Outdoor Brands Unlocks Shareholder Value

The American Outdoor Brands spinoff was a long time in coming but, in the single quarter since it happened, nothing but good things have come. The company reported a stunning 65.7% increase in net revenue that was driven by both traditional channels and eCommerce. Sales through traditional channels increased by 34.3% while eCommerce led with a consumer discretionary sector leading 213% gain. In terms of the market’s expectations, the net revenue beat the consensus by $18.12 million or 26%

The increase in revenue and specifically eCommerce helped the company leverage costs as well. The cost leverage resulted in a 690 basis point improvement in gross margins that carried through to the bottom line. On the bottom line, adjusted EPS of $0.77 grew to 20% of sales versus last year’s 11.7% and beat consensus by $0.52. GAAP EPS of $0.52 beat by $0.51.

The best news is that strength is expected to last into the coming quarter and next year. To that end, company management increased the FY 21 guidance to a range well above the consensus. Execs are expecting revenue in the range of $235 to $245 million with $1.49 to $1.67 in adjusted EPS. The consensus is calling for revenue closer to $210 million and EPS in the range of $0.91.

American Outdoor Brands Q2 Results Spark A Multiple Expansion

Shares of American Outdoor Brands were trading near 17.5X this years earnings but that valuation is worthless now. Based on the Q2 results and guidance for the year the stock is trading closer to 9X its F21 EPS (at the midpoint of guidance) sparking an instantaneous multiple expansion in the pre-market session. Now, with shares up more than 12% the valuation is closer to 11X earnings but still a deep-value compared to the broad market. Shares of Smith & Wesson are also trading at a deep, deep value relative to the market.

Shares of AOUT began moving higher even before the SWBI report was released and have only moved higher since. The stock is now up another 12% and trading at the highest level since the company went public. The indicators are in support of the move with stochastic and MACD both showing strong buy signals with ample room to move higher. In the near-term, traders and investors may look for price action to pull back to firmer support and/or close the gap formed with today’s action. In the long-term, investors should expect to see this stock double in price over the next two to three quarters.