American Outdoor Brands stock dips to 7-year low

American Outdoor Brands Corporation (AOBC) stock plunged to a 7-year low of $8.52 on Wednesday as investors remained concerned about the future of firearms market. The Smith & Wesson gunmaker has been undergoing the shift from firearms business to other related opportunities like outdoor-related offerings.

In 2017, the company has acquired two firms namely Gemtech and Bubba Blade in order to increase its outdoor product line. This purchase was made to help it augment the suppressors and knife product line. The shift in the business strategy has helped American Outdoor Brands as its outdoor related products contributed 26% to the top line at the end of last fiscal.

American Outdoor decided to restructure and combine its electro-optics operating unit with its Outdoor Products & Accessories operating unit for driving efficiencies and increase operating performance. This was due to continued weakness in the market conditions of its electro-optics division.

During the third quarter, Smith & Wesson gunmaker slipped to a loss from a profit last year due to the effect of electro-optics impairment. Quarterly net sales declined by 2.9% year-over-year. Sales growth in both hunting and shooting product categories, as well as cutlery and tool product categories, were offset by declines in outdoor products and accessory segment as well as electro-optics division.

The company believed its distributors and retailers are comfortable with overall inventory levels and that its promotions are in match with the current weaker market conditions. The electro-optics division showcased several new products that were introduced to the market in Q2 just prior to the SHOT show. These included five new innovative red dot sights for pistols and long guns, as well as the new Crimson Trace line of rifle scopes for hunting and target shooting.

The company’s outdoor products & accessories division displayed new products, including the Caldwell hydro sled, Frankford Arsenal M-Press, and a brand new hunting tripod, the BOG DeathGrip. In firearms division, the company introduced the Performance Center Ported M&P Shield M2.0, and Performance Center M442 revolver.

For fiscal 2019, the company expects revenue in the range of $625 million to $635 million and adjusted earnings in the range of $0.69 to $0.73 per share. For the fourth quarter, revenue is expected to be in the range of $162 million to $172 million and adjusted earnings in the range of $0.11 to $0.15 per share.

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The stocks of gun manufacturer have fallen out of favor since 2016 due to an oversupply and slowdown in demand of firearms. Also, the industry continues to see declines in the adjusted number of monthly background checks conducted on potential gun buyers.

After the February 2018 shooting tragedy in Parkland, Florida, the background checks have risen sharply where National Shooting Sports Foundation data showed an 11% spike nationally. The FBI’s National Instant Criminal Background Check System (NICS) data showed that there were 25.2 million background checks in 2017 and 26.2 million in 2018, both down from the 2016 number, which was a sharp rise from the 2015 number.

The gun makers are expected to see their fortunes improve as demand normalizes and pricing stabilizes due to the guns market regaining equilibrium. As the 2020 presidential election getting closer, the gunmakers could be reaping the benefits of higher sales after badly beaten down earlier. This is likely to create good opportunities for the investors in the stocks of the gunmakers.

Shares of American Outdoor Brands opened lower on Wednesday and is trading in the red territory on the Nasdaq. The stock has fallen over 31% in the past year and over 46% in the past five years.

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