What happened

Shares of sporting-goods specialist Vista Outdoor (NYSE:VSTO) closed down 2.15% on Thursday. That doesn't sound so bad, seeing as the entire Nasdaq, for example, closed down 2.13%. What made Vista's stock performance so disappointing is that earlier in the day -- right after reporting earnings -- Vista looked likely to have a much better day, and was at one point trading up 12%.

So what

What explains the swings in Vista's stock price, first up and then right back down? The company reported its fiscal Q1 2018 earnings this morning. Quarterly sales of $569 million exceeded Wall Street's prediction of $553 million -- which was cautious after seeing American Outdoor's numbers last month -- while profits of $0.29 per diluted share were more than twice analysts' expectations of $0.13.

Vista "beat earnings." (Cue stock market ebullience.)

There was just one problem, though. While Vista beat expectations, its sales for the quarter were still down 10% year over year. Profits were down even more -- 40% -- from last year's $0.48 in fiscal Q1 2017 earnings.

There was a 40% decline in earnings. All of a sudden, that earnings beat doesn't seem so impressive anymore, now does it?

Golden revolver

Investors took a shine to Vista Outdoor stock initially -- but it wore off. Image source: Getty Images.

Now what

Regardless, management says it was "pleased" with its performance in the quarter, and feels comfortable reaffirming earlier guidance for the rest of this fiscal year. As of today, Vista still expects to book sales of between $2.36 billion and $2.42 billion for fiscal 2018 and to earn between $1.10 and $1.30 per share -- albeit these are only pro forma earnings. Vista gave no firm GAAP guidance. The company also expects to generate free cash flow of between $175 million and $200 million.

When you consider that all of Vista Outdoor's stock currently outstanding adds up to only $1.25 billion in market capitalization, and that $200 million in free cash flow would value the stock at just 6.25 times these cash profits, the stock looks pretty cheap right now. I think investors got Vista right the first time around.

Vista is a stock that should be bought, not sold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.