Shareholders of American Outdoor Brands would probably like to forget the past six months even happened. The stock dropped 36.9% and now trades at $10.34. This may have investors wondering how to approach the situation.
Is there a buying opportunity in American Outdoor Brands, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think American Outdoor Brands Will Underperform?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than AOUT and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, American Outdoor Brands’s 5.8% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
American Outdoor Brands’s full-year EPS dropped 135%, or 23.9% annually, over the last four years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, American Outdoor Brands’s low margin of safety could leave its stock price susceptible to large downswings.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
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. Unfortunately, American Outdoor Brands’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
American Outdoor Brands doesn’t pass our quality test. After the recent drawdown, the stock trades at 17.7× forward P/E (or $10.34 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of American Outdoor Brands
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.