Sportsman’s Warehouse (NASDAQ:SPWH) continues to fall despite posting a double beat in its most recent report. The outdoor sporting goods retailer posted earnings per share (EPS) of 49 cents outpacing analysts estimates by three cents. On the top line, the company posted $416 million which beat expectations of $406 million.

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One reason for the drop in SPWH stock is that neither number holds up on a year-over-year YOY basis. The company’s earnings were 34% lower YOY from the 75 cents reported for the same period in 2021. The revenue picture was better, but the company still posted 5% less revenue YOY.

Company management also pointed out that margins continue to be under pressure due to the ongoing supply chain difficulties. With that in mind, the company is anticipating its first-quarter earnings and revenue to be lower on a YOY basis as well.

Sometimes when companies report earnings, management gives reasons for lagging performance (weather, fewer shopping days, etc.) that don’t quite ring true. In this case, Sportsman’s Warehouse made it clear that the reason for the drop in revenue was due to lower firearms and ammunition sales.

With this in mind, and considering that the company’s margins remain under pressure, SPWH stock is not a sure thing, despite having a consensus price target that suggests a nearly 60% upside.

One Time the Why Matters

According to the company’s latest 10-K (page 12), Sportsman’s Warehouse derives approximately 54% of its revenue from firearms and ammunition. And management said that the company’s internal data “shows that over 20% of first-time firearm buyers have a propensity to buy a second firearm in the following 12 months.”

Furthermore, the company pointed out that its firearm customers drive 4x more revenue and 2x more transactions than a non-firearm customer. And in 2020 and the first part of 2021, many existing firearm owners began purchasing additional guns and ammunition.

One reason for that was concern that the Biden administration would take a hardline stance on firearm and ammunition sales. However, the administration has softened its language and that may be taking the urgency out of those purchases.

On the other hand, by some estimates there are now 12 million to 15 million new gun owners since the pandemic began. That means that “maintenance sales” of ammunition will be coming off a broader base.

Be Careful With Estimates

According to analysts tracked by MarketBeat, the consensus price target for SPWH stock is $17.33 which represents a 59.75% upside. However, the company has only had three analysts jump in since January of last year. This may be because since December 2020, the SPWH share price was capped at $18 on expectations of a takeover.

The point is with the first earnings report since the takeover fell through there may be other analysts weighing in. And that may move the consensus price down lower.

Is SPWH Stock Worth a Shot?

By the company’s own forecasts, they will deliver sales and revenue that is lower on a YOY basis. In the current market environment, that’s a strong enough signal to stay away. But with the company also likely to see decreased sales in the one area where it arguably has a distinct advantage over many of its competitors, SPWH stock is a tough buy.

However, by many metrics, Sportsman’s Warehouse does appear to have a reasonable valuation. And if the mid-term elections turn out the way that forecasts look at the moment, it may provide a lift to firearm owners particularly as this correlates with the start of hunting season.

But even with that said, you can wait to see at least one or two more quarters of sales data before deciding whether to buy the stock.