Over the next 6 years, Vista Outdoor shares will need to reach $59 to achieve average annual stock market performance of 9.0%. Vista Outdoor’s stock price will need to reach $69 by 2029 to achieve upper quartile performance. What is the market’s view of Vista Outdoor’s future operating performance as reflected in the current price of $35?
Executive Summary
- Price Target Research identifies Vista Outdoor as having: high financial strength, above average expected growth, stability, and very low profitability. A big positive influence on Vista Outdoor’s valuation is its superior Risk Profile.
- High valuation, leading shareholder returns. Current valuation levels are high relative to the Vista Outdoor Peer Group. Recent market returns have significantly outperformed the Vista Outdoor Peer Group. Total shareholder returns expected to seriously beat the overall equity market. Based on current investor expectations, Vista Outdoor shares should reach a level of $70 by 2029 — an 12.2% per year total shareholder return. A 2029 stock price of $59 would reflect median performance and a price of $69 would be required to reach upper quartile performance.
- Vista Outdoor’s past growth is very high. Historical growth has been very high relative to the Vista Outdoor Peer Group and forecasted growth is relatively high. Equity Growth, and Asset Growth have been superior. These factors have buoyed market perceptions of Vista Outdoor. Vista Outdoor’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity.
- Asset Turnover is group leading. Pretax ROA, Pretax Margin, and Return on Equity are group lagging. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Risk Profile has been Vista Outdoor’s biggest valuation strength. Vista Outdoor’s risk profile is very favorable. Overall variability has been only average with only average revenue variability, above average E.P.S. variability, and relatively low stock price volatility. Financial Strength is relatively very high and earnings’ expectations are relatively high. The debt/capital ratio has been relatively steady.
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