Vista Outdoor (VSTO) short, mcap=$1.7bn, price $29.78 vs $35.00

Short pitch:
– Covid beneficiary that is about to mean-revert.
– Retailer of ammunition and sporting goods.
– Might appear cheap trading at 5x fwd PE on peak earnings.
– But gross margins are in the mid-30s vs pre-pandemic at low 20s.
– Due to operating leverage, the falling GMs will have a disproportionately negative effect on the bottom line.
– Zero to negative earnings are not far away.

– Trades at 5x fwd peak earnings.
– Gross margins are set to compress from mid-30% to low-20%.
– Zero to negative earnings expected in near time.

Exp. gain: 30-80% in the next few years.

Full $VSTO write-up (free guest account required):

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