Please ensure Javascript is enabled for purposes of website accessibility

Why Vista Outdoor Stock Popped 12% Today

By Rich Smith - Feb 8, 2018 at 8:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At long last, Vista had some good earnings news to report.

What happened

Shares of outdoors sporting enthusiast Vista Outdoor (VSTO -2.23%) surged in response to a strong Q3 2018 earnings report Thursday, closing the day up 11.7%.

Vista reported quarterly profits of $0.94 per share, beating analyst predictions for a $0.07-per-share profit. Even on a pro forma basis, "adjusting" for one-time gains, Vista's profit came to $0.13 per share, or nearly twice what Wall Street had been expecting. Sales for the quarter exceeded expectations, coming in at $581.2 million, slightly ahead of Wall Street's expectations of $578.2 million.

Cannon Firing

Vista Outdoor's Q3 earnings were the shot heard round the world -- or at least up and down Wall Street. Image source: Getty Images.

So what

Vista Outdoor CEO Chris Metz characterized the results as "solid," and I suppose they were -- relative to Vista's recent past performance, at least.

After multiple quarters featuring cratering profits and weak forecasts, Vista, on Thursday, again reported a year-over-year decline in sales (down 11%) and worse gross profits -- down 25%. Still, the company's $0.94-per-share GAAP profit was a big and welcome change from the $6.44 per-share loss Vista had booked one year prior. Additionally, Vista reported that it generated positive free cash flow of $205 million in Q3 2018 versus cash burn of $18 million in the year-ago quarter.

Now what

The best news of all, however, was that, in forecasting full-year results, Vista was finally able to raise its guidance. Management said that when fiscal 2018 draws to a close, it expects to report sales of approximately $2.25 billion, a GAAP loss of $1 to $0.90 (but an "adjusted" profit), and free cash flow of about $180 million.

Weighed against the company's $997 million market capitalization, this latter projection implies a valuation of just 5.5 times current-year free cash flow for Vista stock. At that valuation, almost any amount of growth in the future should be sufficient to justify buying the stock. The 10% growth consensus among analysts surveyed by S&P Global Market Intelligence should be more than enough to make Vista stock a "buy" at today's prices.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vista Outdoor Inc. Stock Quote
Vista Outdoor Inc.
$29.75 (-2.23%) $0.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.