Categories Analysis, Leisure & Entertainment

Vista Outdoor (VSTO) offers a unique buying opportunity. Here’s why

Acquired the ammunition and accessories businesses of Remington Outdoor Co. last month as part of expanding that segment

When popular leisure facilities like cinema halls and sports venues were closed during the pandemic, one of the natural alternatives for Americans was outdoor recreational activities. The trend came as a boon for companies like Vista Outdoor, Inc. (NYSE: VSTO). Of late, activities like biking, camping and hiking are in vogue as they are considered safer compared to dining-out and movie-going.

Read management/analysts’ comments on quarterly reports

Vista Outdoor designs and manufactures sports and recreation products, especially for the outdoors. The focus of the management’s growth strategy is on broadening the product portfolio and growing market share, mainly through geographical expansion. The company’s customers range from golfers to skiers and recreational shooters to hunters. It offers an array of products including cycling accessories, footwear, paddleboards, sports optics, and sports helmets, besides sporting ammunition that accounts for about 68% of revenues.

The strategic work we’ve done over the past 2 years to improve performance, efficiency, and profitability turned our increased sales into significantly higher margins and dramatically better free cash flow. We improved our leverage ratio to 1.4x in the quarter, enabling us to financial flexibility to weather global uncertainty, invest in critical internal initiatives, brands, and again, look at tuck-in acquisitions as a further level of growth.

Christopher Metz, chief executive officer of Vista Outdoor

Bullish View

The market seems to be impressed by the recent spike in the value of Vista Outdoor and experts see the stock growing by a fifth in the next twelve months, continuing the current uptrend. Analysts are unanimous in their buy recommendation for VSTO, after multiple rating upgrades. Not surprisingly, a large number of investors are following the stock currently. As far as the future prospects are concerned, a lot will depend on whether the current trend is sustainable or temporary.

The company divested two of its firearms brand to an investment group more than a year ago but remains a market leader, holding major brands like Alliant Powder and Speer. The favorable government policies on firearms sales bode well for the company. Last month, it acquired the ammunition and accessories businesses of Remington Outdoor Co.

Strong Numbers

In the second quarter, the company’s revenues and earnings grew sharply and topped the market’s projection, in one of the best performances in its history. At $575 million, net sales were up 29% from last year. Supported by the impressive sales performance, the bottom-line improved to earnings of $1.10 per share from last year’s break-even. Overall, the results benefited from a 35% organic growth in outdoor products and a spike in e-commerce sales. The aggressive initiatives to ramp up the digital platform and to enhance customer experience contributed significantly to the growth.

From Vista Outdoor’s second-quarter earnings conference call:

“We’re the first to recognize that we were aided by tailwinds resulting from consumers excited to get outdoors and recreate safely. However, differently from others, we were able to leverage skills and assets we began building prior to COVID on e-commerce and direct-to-consumer sales to help build and fulfill the demand for products across the portfolio. This included demand for both Outdoor Products and Shooting Sports. The ability to serve consumers directly in today’s climate has helped address shortages at retail and help drive consumers to Vista’s outdoor e-commerce sites.”

Stock Performance

Shares of Vista Outdoor entered a downward spiral more than a year after it went public in early 2015. After slipping into the single-digit territory last year, the shares hit the recovery path and the value more than tripled in the past twelve months. The stock closed the last trading session slightly lower.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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