American Outdoor Brands vs Vista Outdoor Stock

When President Obama took office, gun sales soared. Among gun owners, the risk to the 2nd amendment and the right to bear arms increased. Demand for Glocks, Colts, Rugers, and Berettas skyrocketed. And all those sales translated to soaring share prices for gun stocks.

But when President Trump won the Oval and Republicans took control of Congress, fear subsided, and so too did the sales of guns. Brand name companies like Smith & Wesson, which was subsequently renamed American Outdoor Brands [AOBC], suffered declining sales and lower profits.

Should You Buy American Outdoor Brands Stock?

But after a multi-year selloff is it possible that American Outdoor Brands [AOBC] could finally be a value stock?

American Outdoor Brands stock [AOBC] has steadily drifted lower for years but eagle-eyed investors should pay attention to its price-to-sales ratio, which sits at just 0.84 at the time of our research. That means the entire market capitalization of the company is less than a single year of revenues.

Does it make sense that American Outdoor Brands revenues are higher than its market cap?

If the company was hemorrhaging cash like Tesla at the rate of $8 million per day then perhaps. Or if it had a massive debt load in a high interest rate environment, you could understand it. But interest rates are low and the debt levels, while high, are not off the charts. So for bargain hunters, American Outdoor Brands stock may very well be on sale.

Is Vista Outdoor Stock Undervalued?

Another gun stock to watch is Vista Outdoor [VSTO]. If you’re looking to invest in gun stocks, Vista Outdoor stock price has fared better than its rival formerly known as Smith and Wesson company.

Vista Outdoor [VSTO] sells ammo and lots of it. Other products include riflescopes, shooting accessories, firearms, and reloading components. But ammunition is its bread and butter.

The gun company designs, develops, produces, and source ammunition. Its product line includes shotshell ammo, rimfire ammunition, and centerfire ammunition.

When it comes to financial metrics, Vista Outdoor [VSTO] even beats American Outdoor Brands on its price-to-sales ratio, which is just 0.39.

A closer look under the hood provides reasons to be concerned. The company has $22 million of cash in the bank but a whopping $915 million in debt.

If Apple [AAPL] had close to 1 billion dollars worth of debt it would be no big deal because its revenues are so much larger but for a company with a market capitalization near one billion dollars to be laden with almost an equivalent amount of debt, it suggests the future may be choppy for Vista Outdoor stock should interest rates rise.

Sadly for income-oriented investors these gun stocks will disappoint because no Vista Outdoor dividend nor any American Outdoor Brands dividend is paid out to investors. Instead, the stocks should be held purely on their own merits and based on the expectation of higher share prices.

And for investors who are familiar with brand names like Ruger, Glock, Colt, and Beretta, you might be wondering why not feature them too?

While American Outdoor Brands owns about one fifth of the domestic non-military handgun market, the rest of the market share is heavily fractured. Many gun manufacturers are private and so it’s not so easy to gain exposure to the bulk of gun companies through the public markets, other than the gun stocks listed.

However, if you are speculating on gun control and gun stocks, one strategy is to bet on who controls Congress. History has shown when Democrats take power, gun sales increase while they often decrease when Republicans are in control. If you anticipate a shift in upcoming elections, perhaps an opportunity to profit exists if you pull the trigger.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.