Vista Outdoor Inc. (VSTO): Should You Invest In This Cheap Hot Stock Now?

We recently compiled a list of the 7 Cheap Hot Stocks To Invest In Now. In this article, we are going to take a look at where Vista Outdoor Inc. (NYSE:VSTO) stands against the other cheap hot stocks.

Value Opportunities

Small-cap stocks seem to be set for growth, driven by anticipated rate cuts and strategic stock-picking opportunities. Analysts have noted that these stocks still remain undervalued compared to larger counterparts, and continued rate cuts and confidence in a soft landing for the economy could enhance their performance. In easier words, the outlook for small-cap stocks remains bullish amid changing economic conditions and anticipated monetary policy shifts. Investors are encouraged to focus on strategic stock selection to capitalize on potential earnings growth in this sector as market dynamics evolve. Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management, talked about this earlier in an interview on CNBC, expressing that she expects small-cap stocks to grow further. We covered this discussion in our article on the 8 Most Undervalued Small-Cap Stocks To Buy According To Analysts, here's an excerpt from it:

“Prial noted that small caps have been outperforming in the third quarter, largely driven by expectations of rate cuts, with a 50 basis point reduction being more significant than previously anticipated. She expressed optimism that small caps have substantial room to grow, emphasizing that this could mark the beginning of a multi-year cycle for these stocks. Currently, small-cap stocks are underrepresented in the market, comprising just under 5% of the total equity market, which is at record lows. This low ownership level presents an attractive opportunity for investors.

She pointed out that small-cap stocks remain significantly undervalued compared to their larger counterparts... Prial acknowledged that while the S&P 500 is projected to see earnings growth of 13% in the fourth quarter and 15% in 2025, she believes small caps could exceed these figures. Despite a slight slowdown in economic growth, she maintained that small-cap stocks could achieve earnings growth rates between 15% and 20% next year. She cautioned, however, that overall indices might not reflect this growth as estimates often start high before being revised downward.”

But small-caps aren't the only undervalued sector right now, as GLOBALT Investments senior portfolio manager, Keith Buchanan, mentioned on Wealth! at Yahoo Finance, on October 7. In a recent market update, stocks were slipping as traders digested a hotter-than-expected Consumer Price Index report. With over 90 minutes into the trading day, investors were looking for the next big catalyst, which many believe will come from the upcoming earnings season. To discuss these themes, Keith Buchanon noted that while the excitement around AI seems to be waning, there are still significant opportunities in other sectors.

Buchanon pointed out that earnings expectations have shifted from mid-single digits to mid-double digits for the upcoming year. He emphasized that the fourth quarter is expected to mark a transition from lower healthy growth to more robust growth. This change is not solely due to AI but also reflects broader revenue growth across various sectors, including industrials and energy. He expressed enthusiasm about the potential for earnings growth to stabilize as it expands beyond traditional sectors like technology and consumer services.

When asked about specific sectors to watch as 2024 approaches, Buchanon indicated a shift in focus from AI-centric stocks to more traditional value spaces. He mentioned financials as one sector already benefiting from increased investor interest. Additionally, he highlighted industrials and consumer discretionary sectors as areas that have been overlooked and offer attractive valuations compared to the broader S&P 500.

Buchanon also reflected on the broader market context, noting that the S&P 500 had gained 34.4% over the past 12 months ending in September 2024. Despite various geopolitical tensions, including elections and conflicts around the world, he emphasized that these events are factored into their investment strategies. He drew parallels between current geopolitical risks and those seen in 2021 when inflation became a pressing concern following Russia's invasion of Ukraine.

He acknowledged that while they do not make trades based solely on election outcomes, they consider all incoming information that could impact economic consensus when advising clients. Buchanon’s approach emphasizes a long-term perspective in navigating current market volatility and positioning portfolios for future growth.

Buchanon's opinion helps investors prepare for earnings season and consider opportunities beyond the AI narrative that has dominated discussions over the past couple of years. With a focus on value sectors and a broadening investment strategy, he is positioning for potential growth as we head into 2025.

Methodology

We used Finviz to compile an initial list of the top stocks with a year-to-date performance of over 30%. Then we narrowed down to 25 stocks that had a forward price-to-earnings ratio under 15. We then selected the 7 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A group of hikers on a isolated mountain range with a clear sunset in the background.

Vista Outdoor Inc. (NYSE:VSTO)

Year-to-Date Performance as of October 11: 49.10%

Forward Price-to-Earnings Ratio: 10.88

Number of Hedge Fund Holders: 36

Vista Outdoor Inc. (NYSE:VSTO) is a designer, manufacturer, and marketer of outdoor sports and recreation products, operating in two markets: shooting sports and outdoor products. It has over 40 labels and subsidiaries, manufacturing and distributing products for hunting, shooting, fishing, camping, and other outdoor activities. Some of its well-known brands include Federal Ammunition, Remington Arms, Savage Arms, and Bushnell Optics.

The company reported a revenue decline as it entered the first quarter of fiscal 2025, down by 7.09%, accounting for $644.18 million in quarterly revenue. The company's earnings per share also declined by 6.5% to $1.01. The Kinetic Group generated $370 million in revenue, while Revelyst reported $274 million. The company faced challenges with supply chain disruptions, delayed product launches, and increased manufacturing costs.

However, the GEAR Up program at Revelyst has already saved up around $5 million this year, putting the company on track to achieve its target savings of $25-30 million for the fiscal year 2025. Additionally, its products continue to be recognized, as evidenced by a recent $3.6 million contract with the US military for its 7.62×51 Long Range ammunition.

On October 5, Revelyst entered into an agreement with Strategic Value Partners (SVP) to be acquired for $1.125 billion. The transaction is expected to close by January 2025, subject to certain conditions. SVP's investment will provide Revelyst with additional resources and support to accelerate its growth and innovation. The partnership aims to leverage Revelyst's strong market presence and expertise to expand its reach and profitability.

Vista Outdoor Inc. (NYSE:VSTO) remains laser-focused on driving growth and market share gains with category-defining brands and innovative offerings. Upcoming and continuing product launches further solidify its position as a leader in outdoor gear and technology.

ClearBridge Small Cap Value Strategy stated the following regarding Vista Outdoor Inc. (NYSE:VSTO) in its fourth quarter 2023 investor letter:

“Stock selection in the consumer discretionary sector also weighed on performance during the quarter. Outdoor sports and recreation product manufacturer Vista Outdoor Inc. (NYSE:VSTO) sold off after the company announced its deal to sell its sporting products business for lower than what the market anticipated. We believe the final price is heavily discounted to the intrinsic value of the business and ultimately elected to exit the position in order to consolidate our exposure in higher-conviction holdings.”

Overall VSTO ranks 4th on our list of the cheap hot stocks to invest in now. While we acknowledge the potential of VSTO as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VSTO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.