Vista Outdoor ($VSTO) is not only a summertime hiking/camping/exercise play, which I think most everyone is looking forward to this year, it's the biggest manufacturer of ammo in the US. In fact, there are only two big civilian ammo manufacturers in the US (the other is $OLN), and VSTO dominates that market, including primers. They report earnings before open 5/6.
When they report, their TTM P/E will flip from above 35 to about 9 (yes, nine). They had a bad quarter 4Q ago as the company was undergoing some restructuring after a CEO change; so sometimes this stock has moved as if it's a high-P/E tech stock. But really, it's essentially a deep value stock that also has "explosive" growth in ammo sales. Their market cap was 25% higher under Obama and the company's core lines have grown since then. Gun folks buy more guns’n’ammo under democratic administrations, not GOP ones. The prior CEO was replaced (excuse me: "retired") because he made some bad acquisitions which have since been divested, and better ones made instead (e.g. acquiring Remington’s ammo business). This stock benefits from civil unrest (note price bumps during G-Floyd riots last year), war, paranoia, etc. Basically: 'murica. You might have heard we nearly had some people in hats overthrow the government. Those people all buy ammo. Basically 15% of the country is gearing for civil war and VSTO had a billion dollar backlog at the end of 2020 -- about half their market cap. The national ammo shortage still persists to this day. Gun background checks are off the charts. VSTO has pricing power.
The weekly options are pretty high IV so they aren't an easy way to play this stock unless you're selling 'em. But I think VSTO is gonna pop on earnings, and long-dated options have much more reasonable IV. VSTO has multiple analyst upgrades recently (two major price target raises in the past two weeks), lots of free cash flow, and recently refinanced their completely reasonable debt to a higher credit quality. There's been good news about their new ammo plants (including Remington) coming online. It's a candidate for buybacks or a special dividend. They have 116 full-time job openings listed on their site; many of which are unrelated to ammo, so I guess those parts of their business are going well, too.
But wait, how have comparable stocks done this week in earnings? Is this industry healthy?
- $OLN reported after close 4/27, nice beat on earnings, stock up over 10% since, multiple analyst price upgrades. They’re the other civilian ammo manufacturer (they have a pure chemicals biz for most of their revenue).
- $BGFV reported after close 5/4, massive beat, stock up 30% the next day. Sporting goods retail.
- $RGR reported after close 5/5, beat estimates by 50%, stock up after hours (we'll see how far it runs: earnings conference call is this morning 5/6 at 9am ET), quarterly cash dividend raised 145% compared to 4Q ago and 20% quarter-over-quarter. Gun manufacturer.
- $VSTO reports before market open 5/6. Outdoor goods and ammo manufacturer...
The main risk I see is any possible supply chain disruption (or cost increases) due to shipping. But that just means demand is deferred forward, not denied, and they already have a huge backlog. Its price has also run up a lot in the past year (like many stocks), but it’s not near its 2016 market cap and not at its YTD high. Daily RSI is under 70 and trending up for those who care about technicals.
VSTO has a market cap of ~$2.1b. About half a NKLA, half an AMC, 1/5 of a GME, or 1/10 of a SPLK. Look up VSTO's numbers on finviz or macrotrends. I’ll leave it at that.
Position: long shares @ $33. Long-term bullish. I might buy calls or sell puts, too.
tl;dr -- outdoorsman value stocks are reporting great earnings and VSTO is next in line, the country is a mess, you can buy ammo stock if you aren't just buying stocks of ammo.
Also I thought they reported after market close 5/6, so I was gonna post this in the morning, but apparently they report before market open (welp!). So I'm posting it now. Still useful, I hope, as this is not just a one-time earnings stock.
Submitted May 05, 2021 at 09:31PM by pmchem https://ift.tt/3nQpoZD
