American Outdoor Brands (AOBC) initially traded higher after the company reported results for Q4 and FY18 last week, but the stock now trades below pre-earnings levels. Earnings in Q4 actually came in well above expectations, but management’s soft outlook for FY19 turned the market sour. But investors shouldn’t worry too much about the declines, as volatility is the name of the game in the firearms business. It’s likely that we’ll see another upswing within the next two years and AOBC trades at a very reasonable valuation. That being said, cheaper options are available.
Recent Performance
Revenues in Q4 fell 24.9% to $172M, beating estimates by $6.42M and EPS declined from $0.57 to $0.24, beating estimates by $0.14. For the year, sales declined 32.8% and EPS fell from $2.58 to $0.46, so there was some sequential improvement. These are big declines, but investors can take solace in the fact that there’s nothing unusual going on here. The weakness reflects reduced political pressure on firearms laws compared to 2017, which was an especially difficult comp, and competitors are struggling as well: sales declined ~10% at Vista Outdoor (VSTO) and fell 21% at Sturm, Ruger & Company Inc. (RGR) last year.
