Vista Outdoor Inc. (VSTO) is an Anoka, Minn.-based global leader in designing, producing, and marketing outdoor recreation and shooting sports equipment. Its segments serve the outdoor sports and recreation sectors with a varied portfolio of well-known brands that provide consumers a diverse choice of performance-driven, high-quality, and innovative products.
The stock has gained 37.9% in price over the past nine months and 13.6% over the past three months. In addition, closing yesterday's trading session at $37.83, the stock is currently trading 28.2% below its 52-week high of $52.69, which it hit on Jan.5, 2021.
With its recent purchase of Stone Glacier, its sixth acquisition in less than 18 months, VSTO aims to construct a robust and broad portfolio while increasing the total addressable market across multiple outdoor recreation categories. In addition, VSTO has announced a new $200 million share repurchase program, demonstrating its strong cash flow generating capability.
Here is what could shape VSTO's performance in the near term:
Strategic Acquisition
Last December, VSTO acquired Stone Glacier; a premium company focused on ultralightweight, performance hunting gear suited for outdoor use. With the addition of Stone Glacier to the company's portfolio of outdoor products and shooting sports brands, it will be able to enter the packs, camping equipment, and technical apparel categories with a fast-growing brand and provide a foundation to leverage camping category synergies.
Robust Financials
During the third quarter, ended Dec.26, 2021, VSTO's net sales increased 38.3% year-over-year to $794.65 million. Its gross profit increased 72.4% year-over-year to $281.47 million. And the company's net income grew 49.8% from its year-ago value to $118.13 million, while its EPS grew 52.7% from the prior-year quarter to $2.
Strong Profitability
VSTO's 15.1% trailing-12-months net income margin is 129.9% higher than the 6.6% industry average. Also, its ROC, EBITDA margin, and ROA are 226.1%, 82.7%, and 203.5% higher than their respective industry averages. Furthermore, its $257.52 million in cash from operations is 40.2% higher than the $183.7 million industry average.
Stable Growth Prospects
The Street expects VSTO's revenues and EPS to rise 34.6% and 121%, respectively, year-over-year to $3 billion and $8.09 in fiscal 2022. In addition, VSTO's EPS is expected to rise at a 3.1% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.
Discounted Valuation
In terms of forward Non-GAAP P/E, the stock is currently trading at 4.87x, which is 66.1% lower than the 14.38x industry average. Also, its 0.97x forward EV/Sales is 27.7% lower than the 1.34x industry average. And VSTO's 1.89x forward Price/Book is 39.9% lower than the 3.14x industry average.
Consensus Rating and Price Target Indicate Potential Upside
All four Wall Street analysts that rated VSTO rated it Buy. The 12-month median price target of $66.25 indicates a 75.1% potential upside. The price targets range from a low of $57.00 to a high of $78.00.
POWR Ratings Reflect Solid Prospects
VSTO has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. VSTO has an A grade for Value and a B for Quality. The company's lower-than-industry multiples are in sync with the Value grade. In addition, VSTO's solid earnings and revenue growth potential are consistent with the Quality grade.
Among the 35 stocks in the B-rated Athletics & Recreation industry, VSTO is ranked #5.
Beyond what I stated above, we have graded VSTO for Growth, Sentiment, Stability, and Momentum. Get all VSTO ratings here.
Bottom Line
VSTO is a leading player in the outdoor sports and recreations market with an impressive brand portfolio and an international market presence. So, considering its solid fundamentals and impressive growth outlook, we think the stock could be an excellent addition to one’s portfolio at the current price level.
How Does Vista Outdoor Inc. (VSTO) Stack Up Against its Peers?
VSTO has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Athletics & Recreation industry with B (Buy) ratings: Academy Sports & Outdoors Inc. (ASO), Columbia Sportswear Company (COLM), and MarineMax Inc. (HZO).
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VSTO shares were trading at $37.59 per share on Friday morning, down $0.24 (-0.63%). Year-to-date, VSTO has declined -18.41%, versus a -5.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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