Why is retail investor interest in ASO shares rising?

By Kirsteen Mackay

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The ASO share price has risen 50% year-to-date. Retail and social media interest is surging. What's going on with Academy Sports and Outdoors?

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Retail interest in Academy Sports and Outdoors (NASDAQ:ASO) appears to be growing over the past few days. Perhaps the news of its recent full-year results is gradually filtering through to make investors take note. 2020 proved an exceptional year for the ASO share price as the pandemic encouraged people to pursue outdoor sports. But it’s going to be hard to continue that trajectory from now on.

Camping ASO share price rise and retail interest surges

Camping Photographer: Scott Goodwill | Source: Unsplash

ASO improving revenues

In January 2021, revenue growth improved 17.8% year-over-year reaching $5.7 billion. For 2020s fourth quarter, ending January 31, the company beat analyst estimates by $20 million on revenues and 59 cents on earnings per share (EPS). This welcome news was unexpected.

With travel restrictions leading families to invest in home gyms, garden camping and outdoor sporting activities, the reasons for solid 2020 sales are clear. However, it’s not clear if this trend will continue throughout 2021. Pent up demand for vacations, social entertainment, and visiting fitness centres is expected to be high. That’s why analysts think a 4% revenue decline is quite likely.

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Fishing supplies at Academy Sports and Outdoors

Nevertheless, the company expects e-commerce to be a sales driver in the year ahead. And now that consumers have discovered ASO, perhaps they will become loyal long-term customers of the store.

Academy Sports and Outdoors impressive financials

In its most recent earnings call the company executives stated full-year e-commerce sales rose 138%. Meanwhile, buy online pickup in store, and curb-side pickup represented approximately half of total e-commerce sales for Q4 and FY20.

Gross margins impressed analysts considering many companies have faced increased supply chain costs throughout the pandemic.

Two of the most exciting things shareholders like to see are cash on the balance sheet and little to no debt. ASO ended 2020 by doubling its cash and halving its long-term debt year-over-year.

For 2021, management project diluted earnings per share to come in between $2.70 to $2.95. Some believe that’s an aggressive assessment, considering it’s an 80% increase on pre-pandemic levels. However, it’s a reduction of 25% year-over-year and other analysts believe it’s achievable.

Hedgeye Retail analysts Brian McGough and Jeremy McLean note:

“Revenue was known from its prelim sales results, but margins were very impressive, particularly gross margin despite the industry headwinds we’ve seen in retail of higher ecommerce and freight from excessive demand and port delays.”

ASO future outlook

If its outlook for 2021 is correct, analysts take this to amount to between $350 million and $400 million in free cash flow. That’s accounting for around $80 million in capital expenditure (capex). This would help eliminate debt altogether and further strengthen future outlook.

ASO intends to progress with an astute approach to maintaining stability in the next couple of years. It hopes to invest in improving its existing initiatives with emphasis on growing online. It’s also got plans for 30 remodels and to begin opening new stores in 2022. There may also be a dividend in the pipeline for the second half of 2022.

Social media interest surges

Is this another case of GameStop hype driving retail investors into another favoured retailer to boost the share price? WallStreetBets, Stocktwits and Twitter saw enhanced interest in Academy Sports & Outdoors over the holiday weekend.

According to High Short Interest Stocks tracker, ASO has around 40% interest in the stock. Prior to this, short interest was around 55% in January. This may well be a trigger increasing retail and social media interest but it’s not clear.

Nevertheless, the ASO share price is up nearly 50% year-to-date. And it’s up 17% over the last month as some long-term investors still see a favourable outlook.

The sporting goods retailer’s current price-to-earnings ratio is around 8, rising to 11 for the next 12 months. And that doesn’t indicate an expensive stock.

However, the company only publicly listed via IPO in October. At this time shares were trading hands for $13. Today it’s around $31.

UBS Wall Street Analyst Michael Lasser commented:

“We think elevated category demand for outdoor activities and home fitness continued through the holidays. Further, we think ASO has begun 2021 with strong momentum…The company is seeing strong early readings in categories such as water sports that indicate the elevated demand for pursuing outdoor recreational activities should continue.”

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Topics:
Specialty Stores
Industries:
Consumer Discretionary
Companies:
Academy Sports & Outdoors

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.