American Outdoor Brands Is Under-Estimating Its Growth

American Outdoor Brands Reaffirms Guidance

American Outdoor Brands NASDAQ: AOUT stock is moving lower following the release of its Q1 earnings report a week ago. The report is good, as is the guidance, but one thing was missing and that is weighing on the price action. While good, the guidance was only reaffirmed at the previous rate which assumes about 4% year-over-year growth at the midpoint. This is far less than what the market was expecting and well below what its peers in the sporting goods and outdoor lifestyle markets are projecting. We believe this is opening up an opportunity for investors. With shares moving lower, the stock is trading at the low end of the value range for the outdoor lifestyle and sporting goods stocks and offers a value as well as an opportunity for growth, and outperformance.

Tough Comps Ahead For American Outdoor Brands

American Outdoor Brands reported a great quarter and is still expecting growth for the year albeit at a tepid pace compared to what the market was expecting. Looking at the comps, it’s not hard to understand why the company guided as it did, but, in our view, the 4% midpoint for revenue growth is very cautious and will likely be exceeded by hundreds if not by 1000 basis points.  

Meanwhile, the company's Q1 revenue of $60.77 is up 20.4% from last year and beat the consensus by 370 basis points. The company says strength was seen in all product lines and both traditional and e-commerce channels. Revenue is up 83% from the first quarter of 2020 for the first quarter the company reported earnings after its spin-off from Smith & Wesson.

Moving down the report, the company was also able to improve its gross margins by 70 basis points. The company's net income nearly doubled on the combination of revenue strength and margin improvement to produce GAAP earnings of $0.24. The GAAP earnings of $0.24 beat the consensus by $0.13 and there was significant strength in the adjusted earnings as well. On an adjusted basis, the company's $0.48 in reported earnings beat the consensus by $0.08 and set it up to outperform the full-year consensus as well. 

The Analysts Are Bullish On American Outdoor Brands

There hasn't been a lot of chatter out of the analyst community this year but what there has been is bullish. The most recent shout-out came from B. Riley in the wake of the earnings report and reaffirms a Buy rating and price target of $47. This compares to the consensus price target of $31.47 and assumes a near 100% upside for the stock. The Marketbeat Community rating is overwhelmingly bullish as well with 65% in favor of the consumer discretionary sector and nearly 90% in favor of American Outdoor Brands. 

The Technical Outlook: American Outdoor Brands Is Overextending

Shares of American Outdoor Brands began correcting long before the Q1 report was released. In the wake of the report, the sell-off is extending and overextending the market.  Both the MACD and stochastic indicators are divergent from the new lows revealing weakness and the trend and underlying strength in the market. There is a chance that price action will fall to the $23.35 level and close a GAAP formed a few months ago. In that event, we would expect to see strong support form at that level if not higher. Longer-term, American Outdoor Brands may wallow at or near current levels for the next month or two but we expect to see it moving higher and setting a new high before the end of the year.