Set Up Camp with These 2 Outdoor Equipment Providers

09/02/2015 9:00 am EST


Matt McCall

Founder and President, Penn Financial Group

In this type of stock picker’s market, it is often important to find a combination of both value and growth to increase the chances of outperforming the market, so Matt McCall, of Penn Financial Group, highlights two names in one niche sub-sector in the retail space that might be worth considering.

The retailers have been a tough sector for most investors this year as it has become more difficult to pick the winners. Home improvement store Home Depot (HD) has outperformed as the country’s largest retailer, Wal-Mart (WMT) is trading near a new multi-year low.

Even within sub-sectors—such as electronic stores or department stores—there are winners and losers. For a lack of a better phrase, the retail sector is truly a stock picker’s market.

One niche sub-sector are the sporting goods stores that concentrate on outdoor equipment. The big name in the sector is Cabela’s, Inc. (CAB), with a market capitalization of $3.2 billion. Another publicly traded company in the space, which has outperformed its larger peer is Sportsman’s Warehouse Holdings (SPWH). The $540 million company recently hit a new all-time high and is up 76% in 2015.

Last week, SPWH reported second quarter earnings that beat consensus estimates on both the top and bottom line. Net income rose from $5.1 million last year to $8.2 million in the most recent quarter. Net sales increased by 8.5%. The company also raised full year guidance for both revenue and net income.

Even though the company trades at 21.6 times the 2016 earnings per share estimate of 60 cents, the PEG ratio is below 1.0, due to its above-average earnings growth. Another measure of valuation, the price-to-sales, is also below the sector average at 0.72. The combination of value with growth potential makes SPWH a stock to watch.

CAB has underperformed the market this year with a loss of 13%, but the stock has rallied recently and on Tuesday morning the company announced a $500 million share repurchase program. The stock jumped on the news to the best level in six weeks as the overall market struggled.

The valuation metrics are not as attractive for CAB versus SPWH. That being said, versus the overall retail sector, they are not bad. The price-to-sales is a respectable 0.83 and the PEG ratio comes in at 1.30. The P/E ratio based on 2016 earnings estimates is lower than SPWH, but the growth expectations are not there.

In this type of stock picker’s market it is often important to find a combination of both value and growth to increase the chances of outperforming the market and SPWH has just that.

Matt McCall, Founder and President, Penn Financial Group

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