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Bull of the Day: Sportsmans Warehouse (SPWH)

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Sportsman’s Warehouse (SPWH - Free Report) is a Zacks Rank #1 (Strong Buy) that operates as an outdoor sporting goods retailer.  The company offers hunting and shooting products, as well as clothing, footwear optics, electronics, and other accessories.

The stock has been one of the biggest victims of the recent market sell off, falling 50% from its 2021 highs. Half that sell-off had to do with a cancelled merger with The Great Outdoors. The other half has been market sympathy and margins fears in retail.

However, the company is seeing estimates tick higher as of late. With earnings coming up at the end of the month, the stock is looking oversold into a quarter that analysts are hiking their numbers.

More about SPWH

The company was founded in 1986 and is headquartered in West Jordan, Utah. It employs 3,000 people and has a market cap of $400 million. As of April 27, 2022, the company operated through 125 stores.

The stock has a Zacks Style Score of “A” in Valuation due to a low Forward PE of 6. However, the stock sports a score of “D” in Growth and “F” in Momentum.  

Merger Deal Breaks Down

SPWH was trading at $18 for almost all of 2021 as the company was in a merger agreement with Great Outdoors Group. This is the firm that owns Bass Pro Shops and the FTC gave the companies feedback that they would block the deal. For this reason, the companies backed away from the merger, which caused the stock to fall to $12.  

Earnings and Estimates

When you look past the merger, the company has had some mixed results over the last few years. During the pandemic, sales went through the roof and the SPWH saw multiple quarters when they beat on EPS by triple digit percentages.

But like most companies that thrived during COVID, things slowed down and the last two quarters of 2021 saw EPS misses.

In late march, Sportsman’s Warehouse turned things around with a 6% EPS beat. Not a great quarter, but with many retailers missing numbers, this was a pleasant surprise.

 

Looking at estimates, analysts are taking their numbers higher over the last 60 days. For next quarter, we see a tick higher from $0.32 to $0.37, or 15%. For the current year, estimates have gone up 23% over that same time frames.

Some analysts are citing Sportsman Warehouse’s ability to take market share as a catalyst. B. Riley FBR has a $14 price target on that idea and sees SPWH’s adaptive expansion strategy allowing the company to penetrate both smaller and larger markets.

The Technical Take

The stock has acted like many stocks did in 2022 and simply bled lower. After the merger fell apart, the stock fell to trade in the $11-12 range. As of this writing, it trades about 20% lower at $9 a share.

In a market so bearish, there is no need to rush in and buy this stock. While there is clearly a fundamental long-term bull story here, investors should look for levels of support where they can buy the stock.

The stock is trying to hold that $9 level. The $9-10 range was the trading range back in 2017 and an area to watch. However, if we get further market weakness, look for the stock to fall to the $7.50 area. This was the resistance from 2018-2020 and should see some long-term support.

In Summary

While markets are under pressure, investors should be patient with their long-term ideas. While SPWH is a great idea at current levels for longer-term investors, those on the shorter time frame should wait for technical support to hold.

Look for the stock to continue to struggle through the current environment, but then watch for investors to shift bullish into the end of the year.


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