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Sportsman Warehouse Inc. an Opportunity?

Sportsman Warehouse Holdings Inc. (SPWH) has declined more than 67% from a 52-week high of $14.18. Today the company trades at $4.64/share and has a market cap of $196.0 million. The continued negative trend in the stock price is beginning to create opportunities for value investors. Let’s take a closer look at this company.

Sportsman Warehouse operates in a tough retail sector as an outdoor specialty retailer. Most of the companies’ stores are based in Western United States and Alaska.

The company has modestly seen revenue growth annually which can be contributed to new store openings. Last year earnings per share (EPS) came in at $0.66 and the company in on pace to report similar results. The Price to Earnings ratio (P/E) for the company is around 6.5, the lowest it has ever been.

Investors who have sold out of the stock may be disappointed with growth prospects during the last few years. Short interest has increased significantly from that of a year ago, contributing to the downward pressure. The proposed merger deal between Bass Pro and Cabela’s may also be effecting the performance of Sportsman Warehouse. Anytime two large companies merge together this can create a greater influence on distributors which may affect the profitability of smaller players.

On a positive note, Sportsman Warehouse is seeing greater demand for product in the firearms categories. The company continues to add new users to loyalty programs. Online sales are increasing as customers resort to the internet for purchases. Both loyalty programs and online sales are to remain a priority for the company in the quarters to follow. Furthermore, the company is beginning to focus on paying down debt. This will certainly help create more equity for shareholders which should result in better evaluations.

Given the sharp sell off in the stock I believe it may be a good time to begin accumulating a long position. Sportsman Warehouse appears to be focusing on the right areas: growth in ecommerce, retention of customers through loyalty programs, and paying down debt to create value for shareholders.

The premium for writing puts or taking a covered call position both look attractive as well as purchasing and holding the shares at current market value. My 12-month price target is $8.50.

At the time of writing this article I have no position in Sportsman Warehouse Holdings.


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