We came across a bullish thesis on Sportsman’s Warehouse Holdings, Inc. (SPWH) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on SPWH. Sportsman’s Warehouse Holdings, Inc. (SPWH)’s share was trading at $2.47 as of Dec 18th. SPWH’s trailing and forward P/E was 4.49 according to Yahoo Finance.
A person fishing in the lake, using the companies fishing equipment to reel in their catch.
Sportsman’s Warehouse (SPWH) represents a compelling small-cap value opportunity within the consumer discretionary sector, particularly as it embraces a niche in hunting, fishing, and outdoor recreation. Unlike some competitors like Vista Outdoors (VSTO) that have pivoted away from firearms, SPWH has doubled down on this category, benefiting from increased demand in regions affected by violent crime and limited recreational alternatives, such as Arizona. The company’s resilience is bolstered by its predominantly domestic supply chain, with minimal exposure to tariffs, creating potential for margin expansion as customers increasingly opt for SPWH’s private-label offerings over leading brands.
The macroeconomic environment presents significant tailwinds for SPWH. Under a Trump administration, the blue-collar segment, a core demographic for SPWH, could see rising disposable incomes fueled by accelerated depreciation tax policies, reduced immigration, and heightened consumer confidence. While immediate wage increases may take time, the psychological uplift could drive near-term demand, particularly during the holiday season. SPWH’s guidance reflects this optimism, with plans to use cash flow from seasonal inventory reductions to repay $20 million in revolving debt.
Despite a challenging retail landscape and declining comps since 2021, SPWH has taken proactive measures to stabilize. Management has curtailed growth capital expenditures, with no store openings planned for 2024 and only one in 2025, and has implemented cost-cutting initiatives to maintain free cash flow positivity. The company carries relatively low long-term debt, with $150 million drawn on its revolver and another $150 million available, ensuring sufficient liquidity to weather current headwinds. Insider confidence in the company’s prospects is evident, with substantial insider buying from the CEO, CFO, and multiple directors.
The path to profitability appears achievable as SPWH’s transaction count rises, signaling a growing brand, even as the average transaction value declines due to economic pressures on its customer base. Competitors like Academy Sports and Outdoors (ASO) may present less risk with current profitability, but SPWH offers far greater upside on a sector recovery. Trading at just 0.40x book value, compared to ASO’s 2.0x, SPWH’s valuation underscores its potential for substantial multiple expansion.
Risks include potential acquisition by Bass Pro Shops, which was previously blocked under stricter antitrust policies. A Trump-era regulatory environment could revive this possibility, potentially limiting upside. However, if SPWH regains its pre-pandemic sales levels and achieves a modest 0.5x price-to-sales ratio, it could deliver a 5x to 7x return in a few years. While the timing may remain uncertain, SPWH’s strong management, insider confidence, and macro tailwinds make it an ideal setup for asymmetric upside.
Sportsman’s Warehouse Holdings, Inc. (SPWH) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held SPWH at the end of the third quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of SPWH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SPWH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.