Performance in a core niche can very well determine the course of the SPWH stock
Athletes’ Warehouse (NASDAQ: SPWH) The fall continues despite the recent double-posting of earnings reports. Outdoor sports goods retailer posted earnings per share (EPS) of 49 cents, analysts estimated by three cents. At the top line, the company posted $ 416 million, exceeding expectations of $ 406 million.
One reason SPWH stocks are declining is that no numbers hold on a one-year-over-year YOY basis. YOY is 34% lower than the company’s reported 75 cents for the same period in 2021. The revenue figure was better, but the company still posted 5% lower revenue YOY.
Company management also noted that margins are under pressure due to ongoing supply chain problems. With that in mind, the company expects its first-quarter earnings and revenue to be even lower on a YOY basis.
Sometimes when companies report earnings, management attributes delays in efficiency (weather, less shopping days, etc.) which is not entirely true. In this case, the Sportsman’s Warehouse has made it clear that the decline in revenue is due to lower sales of firearms and ammunition.
With that in mind, and considering that the company’s margins are under pressure, SPWH stock is not a sure thing, despite having a consensus price target that suggests a 60% uptrend.
One Time the Why Matters
According to the company’s latest 10-K (p. 12), the Sportsman’s Warehouse derives about 54% of its revenue from firearms and ammunition. And management says the company’s internal data “shows that more than 20% of first-time firearms buyers tend to buy a second firearm in the next 12 months.”
In addition, the company noted that its firearms customers had 4 times more revenue and 2 times more transactions than non-firearms customers. And in the early part of 2020 and 2021, many existing firearms owners began buying additional guns and ammunition.
One reason for this was the concern that the Biden administration would take a hard line on the sale of firearms and ammunition. However, the administration has softened its language and it may take urgency from those purchases.
On the other hand, some estimates put the number of gun owners at 12 million to 15 million since the epidemic began. This means that a broad base of “maintenance sales” of ammunition will be closed.
Be careful with guesswork
According to analysts tracked by Marketbeat, the consensus price target for the SPWH stock is $ 17.33 which represents a 59.75% uptrend. However, only three analysts of the company have jumped since January last year. This may be because since December 2020, the share price of SPWH has been limited to $ 18 in anticipation of takeover.
The point is that since the takeover fell with the first earnings report there may have been weights from other analysts.
SPWH stock worth a shot?
According to the company’s own forecast, they will provide sales and revenue that is lower on a YOY basis. In the current market environment, this is a strong enough signal to stay away. But the company is also likely to see a drop in sales in a case where it has a distinct advantage over many of its competitors, making SPWH stock a tough buy.
However, by many metrics, there seems to be a reasonable assessment of the Sportsman’s Warehouse. And if the mid-term election looks predictable at the moment, it could provide a lift to firearms owners, especially as it relates to the start of the hunting season.
That being said, you can wait to see at least one or two-quarters of the sales data before you decide to buy the stock.