Today, investors in American Outdoor Brands (NASDAQ:AOUT) are seeing a lot of red. Indeed, shares of AOUT stock are down more than 22% at the time of writing, trading with heavy volume. Nearly 10 times the average daily volume of shares have already traded hands, with time left to go in the trading day.
It makes sense to think that this move is indicative of some significant news with AOUT stock. And investors would be right to assume that’s the case. We’ll get to that in a minute.
However, today’s decline could certainly be viewed as a head-scratcher for investors. Indeed, American Outdoor recently got a target price increase to $44 per share and a buy rating ahead of today’s earnings report. Analyst Eric Wold cited strength in demand for “outdoor products and shooting sports accessories” as key to this assessment. And it’s true, the company’s valuation was given a meaningful lift in recent months. However, analysts have remained bullish on this company’s ability to grow into its valuation and see further multiple expansion on the horizon.
That said, with shares trading down to the $28 level currently, it appears the market disagrees. Let’s dive into why this is the case.
AOUT Stock Down on Disappointing Earnings
Today, AOUT stock took a dive on what the market viewed as disappointing earnings.
What’s intriguing about this earnings report is the company beat on its bottom line. American Outdoors reported non-GAAP earnings per share of $0.34. This beat the average analyst consensus estimates of $0.23 by a very wide margin (nearly 50%).
However, revenue came in lower than expected. The company’s 50% year-over-year growth rate in revenue to $64.5 million wasn’t good enough for the Street, which was factoring in revenue closer to $65 million.
Now, on its face, these numbers appear to be solid. The revenue miss was small, with a massive earnings beat. Overall, the report seems strong, showing excellent margin expansion and earnings growth potential.
However, a key factor investors are also honing in on is relatively unimpressive forward guidance. American Outdoors provided a 2022 forward earnings-per-share guidance range of $2.02 to $2.26. This guidance range takes into effect supply-chain constraints, as well as increased G&A costs relative to the current pandemic levels. The market appears to be let down by relatively cautious forward guidance, which doesn’t provide much in the way of growth relative to analyst consensus estimates for EPS coming in around the middle of this range.
With stocks priced to perfection today, these sorts of reactions are becoming more commonplace. Indeed, companies that don’t absolutely blow away earnings and provide exceptional guidance are getting blown out. The degree to which this selloff is transitory remains to be seen, but investors certainly have an interesting stock to think about.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.