Johnson Outdoors (JOUT) is a company that operates in the outdoor recreation products market. Thy make canoes, fishing equipment, diving gear, and tents. It has a $686 million market cap and pays a 1.84% dividend. They have a history of dividend raises, and have doubled the dividend payout since 2019. They have no long term debt. I believe it is undervalued. (numbers via finviz and morningstar). I do not currently have a position in this stock, but it is high on my watchlist.
So why is it down this year?
JOUT had a revenue bump during covid. However, they got hit really hard by supply chain issues. As a result, their margins got crushed. Their ROIC had been running in the mid teens (5 year average is 15), but it dropped to 9.4 last year. Gross margins went from 44 to 36. The net margin went from 11 to 5. Basically, their input costs went way up and ate away profits.
So is this fixed?
Yes, it appears that as China reopens, margins are recovering. Margins are recovering and they are resupplying their customers. Next year they are forecast to rebound earnings to $6.39/share.
So what?
JOUT earnings dropped to $4.38/share last year because of supply chain issues. However the share price dropped too. The average p/e for JOUT is around 15. Its forward p/e is around 10. It averages trading around 2.33x book value, and its currently around 1.3x. So if it earns as expected, it has about 50% upside. That's not a bad boost. If they hit their projected earnings, and get a 15 p/e, this is a $95 stock, which is currently trading around $66.
There's a recession coming, won't that hurt earnings?
Possibly. I believe that even if sales do slow, just fixing their margins justifies its current price. My bear case scenario puts a value around $75, just by fixing their margins. And the recession won't last forever. More people enjoy the outdoors, and JOUT is a beneficiary of that trend.
Is this a short term play only?
Not really. JOUT has proven to be a good performer. It has a great balance sheet, growing dividend, and operates in a fragmented market so they can put their cash to good use. On a timeframe beyond a recession, JOUT should continue to be a solid performer. And they pay a dividend while you wait. For technical traders, the 50 day moving average is about to cross above the 200 day. It's been consolidating in the high $60's for a few weeks and has earnings coming up soon. A nice trend reversal, with a potential to break higher. I'm strongly considering opening a position on Monday.
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