American Outdoor Brands (AOUT)

Recreational products manufacturer American Outdoor Brands (NASDAQ:AOUT) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 9.5% year on year to $58.51 million. The company expects the full year’s revenue to be around $208.5 million, close to analysts’ estimates. Its GAAP profit of $0.01 per share was significantly above analysts’ consensus estimates.

Company Overview

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ:AOUT) is an outdoor and recreational products company that offers outdoor and shooting sports products but does not sell firearms themselves.

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Other companies offering shooting sports and outdoor products include Ruger (NYSE:RGR) and private companies O.F. Mossberg & Sons and the Remington Arms Company.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, American Outdoor Brands’s sales grew at a sluggish 5.2% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. American Outdoor Brands’s recent performance shows its demand has slowed as its annualized revenue growth of 3% over the last two years was below its five-year trend.

This quarter, American Outdoor Brands reported year-on-year revenue growth of 9.5%, and its $58.51 million of revenue exceeded Wall Street’s estimates by 4%.

Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

American Outdoor Brands’s operating margin has been trending up over the last 12 months, but it still averaged negative 3.9% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q4, American Outdoor Brands’s breakeven margin was up 5.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although American Outdoor Brands’s full-year earnings are still negative, it reduced its losses and improved its EPS by 16.8% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q4, American Outdoor Brands reported EPS at $0.01, up from negative $0.23 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast American Outdoor Brands’s full-year EPS of negative $0.35 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

American Outdoor Brands has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.2%, lousy for a consumer discretionary business.

American Outdoor Brands’s free cash flow clocked in at $4.21 million in Q4, equivalent to a 7.2% margin. The company’s cash profitability regressed as it was 11 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

American Outdoor Brands’s five-year average ROIC was negative 0.4%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, American Outdoor Brands’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

American Outdoor Brands is a well-capitalized company with $17.07 million of cash and $1.34 million of debt on its balance sheet. This $15.73 million net cash position is 9.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly American Outdoor Brands blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited its full-year guidance for all three metrics beat Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock remained flat at $15.09 immediately after reporting.

Updated: June 14, 2025 at 11:35 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in American Outdoor Brands.

American Outdoor Brands doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its operating margins reveal poor profitability compared to other consumer discretionary companies.

American Outdoor Brands’s P/E ratio based on the next 12 months is 22.7x. At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $17.75 on the company (compared to the current share price of $11.26).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.