American Outdoor Stock Down 5% Today – Time to Buy AOUT Stock?

The price of American Outdoor stock has been on a downtrend since 15 July this year back when it reported its financial results covering the fourth quarter of its 2021 fiscal year as its guidance failed to dazzle market participants.

As result, shares have slid nearly 27% from their 52-week high of $35.9 per share while they are dropping almost 5% at $25 per share this morning despite the company beating estimates for both revenues and earnings for the period.

Why is American Outdoor stock experiencing such a downtrend if the business is performing better than expected?

In the following article, I’ll take a closer look at the company’s price action and fundamentals to possibly answer that question.

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American Outdoor Stock – Technical Analysis

American Outdoor stock is on a clear downtrend while the recent price action left behind a worrying bearish price gap amid its Q1 post-earnings slide.

Only a few days ago, the price made a new low at $27.8 per share although the stock recovered slightly upon tagging what seems to be a relevant horizontal support area at $25 per share.

The relevance of this level was evidenced by the above-average trading volumes seen on the day that this level was tagged while yesterday the stock bounced off this threshold as well during another high-volume trading session.

Moving forward, if today’s decline ends up breaking this important level, the next area of support would be found at $24 and then at $20 for a total downside risk of around 20%.

Momentum oscillators are also favoring a bearish outlook at the moment as the MACD remains neck-deep into negative territory while the RSI has failed to climb above the 50 level multiple times already.

American Outdoor Stock – Fundamental Analysis

Sales of American Outdoor were on a downtrend before the pandemic stroked, moving from $171.7 million by the end of the 2018 fiscal year to $167.4 million by the end of the 2020 fiscal year.

However, the pandemic appears to have had a positive impact on the business as reflected by the significant jump its top-line results experienced last year as sales came in 65% higher than the previous year at $276.7 million.

Gross profit margins for the company have stood at around 46% historically while EBITDA margins have averaged 15%. On the other hand, the company swung to a net profit last year on the back of these higher sales while non-GAAP earnings per share landed at $2.32.

In terms of its solvency, American Outdoor has no borrowings and held only $24.3 million in long-term lease obligations by the end of Q1 2022. Meanwhile, the company reported total cash and equivalents of $56.3 million by the end of 31 July 2021.

At its current price of $26.2 per share, the company is trading at 12 times its forecasted earnings for the next twelve months and at 2.2 times its tangible book value.

Moving forward, analysts are expecting that non-GAAP EPS should remain within the $2 and $3 range in the next few years meaning that the firm’s growth is expected to stall. Moreover, the consensus rating for American Outdoor is bullish as 5 out of 5 analysts currently covering the stock are holding a buy rating on AOUT stock.

Moreover, the 12-month price target for the stock is currently standing at $40 per share resulting in a 60% upside potential if that target is hit.

All in all, it seems that American Outdoor is currently fairly valued based on the current state of its balance sheet, past results, and growth prospects.

Therefore, it would be plausible to see this downtrend reversing at some point as market participants should start to progressively incorporate the firm’s future earnings growth into its price.

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