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Why American Outdoor Brands Stock Just Dropped 11%

By Rich Smith - Aug 25, 2020 at 11:56AM

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It looks like a sell-off, but may not be a sell-off.

What happened

American Outdoor Brands (NASDAQ: AOUT) confirmed yesterday that it has completed the spinoff of its guns division as the newly reconstituted Smith & Wesson Brands (SWBI 1.08%). What was left of American Outdoor Brands, however, promptly plunged in price.

As of 12:15 p.m. EDT, shares of American Outdoor Brands stock are down 11% -- but is that a bad thing?

Finger touches a button labeled SPIN OFF

Image source: Getty Images.

So what

To find out, let's do a little math. According to Yahoo! Finance data, the last recorded market capitalization of Smith & Wesson Brands stock, still tickered AOBC at the time, was $1.24 billion.  

Currently, Yahoo! tells us that the guns division, now tickered SWBI, is valued at $939 million.

Yahoo! doesn't have data currently on American Outdoor Brands as AOUT, but our friends at S&P Global Market Intelligence do, reporting that American Outdoor Brands sans Smith & Wesson is currently worth $269 million.

Now what

Data on companies that have just completed a spinoff or IPO can be a bit quirky as financial data providers adjust to the new reality and get their ducks in a row. By tomorrow, I suspect, or at least later in the week (I hope) the kinks will have been worked out and investors can resume relying on the data they see. For the time being, however, if you add up what Smith & Wesson Brands stock is currently worth ($939 million), and what American Outdoor Brands is currently worth ($269 million), you come away with a sum ($1.21 billion) that's very close to what the two stocks were worth when they were still together.

In short, I don't think American Outdoor Brands shareholders need to worry overmuch. It may not really be a sell-off we're seeing today, but just a difference in opinion about how to add up the numbers.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Smith & Wesson Brands, Inc. Stock Quote
Smith & Wesson Brands, Inc.
SWBI
$14.90 (1.08%) $0.16

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