Vista Outdoor Inc – Making significant progress against strategic priorities.

Vista Outdoor Inc (NYSE: VSTO) designs, manufactures and markets consumer products related to outdoor sports and recreation markets.

Investment Rationale – Speculative Buy at USD 29.77

• From the technical standpoint, 20-day SMA (23.19) is supporting the uptrend in the stock.
• Since the FY15, VSTO’s liquidity profile is quite strong since its current ratio and quick ratio have remained above 2.87x and 1.53x, which are significantly higher than the industry median.
• The Company believes that long-term participation trends shall support the demand for hunting and shooting-sports related products.
• Its outdoor products brands also hold a competitive position in the market, which shall be supported by significant investments in E-Commerce capabilities.

Risk Assessments

• There are uncertainties associated with operational challenges caused by Covid-19 pandemic.
• The rising unemployment battered consumer confidence, and conditions in retail markets can impact the growth trajectory of the Company.
• The capital market volatility and availability of financing can impact the VSTO’s abilities to tap market opportunities.

Quarterly Report for the period ended 27 September 2020 (as on 26 October 2020)

 (Source: Company Website)

• During Q2 FY21, sales increased by 29.20% year-on-year, while gross profit surged 79.4%, primarily driven by strong demand and improved pricing.
• With significant growth in sales volume and pricing, EBIT increased 5,658% year-on-year in Q2 FY21.
• Subsequently, the Company reported a diluted EPS of US $1.34 in Q2 FY21 versus diluted EPS of US$(0.21) in Q2 FY20.
• Following the quarter end, Vista also acquired certain assets of Remington Outdoor Company, Inc.’s ammunition and accessories businesses.

One Year Share Price Chart    

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

 Conclusion

VSTO provides a diverse portfolio of nearly 40 brands through independent retailers, distributors, and online channels. The Group has been progressing well with its transformational plan to drive profitable growth by serving innovative products, which shall create long-term value for its shareholders. In order to achieve so, the Group has been optimising the organisational structure, reducing financial leverage, and accelerating e-commerce capabilities. Stock 52 week High and Low were USD 29.92 and USD 4.29, respectively.

(Source: Company Presentation)

Based on business capabilities, industry prospects, and valuation mentioned above, we have given a “Speculative Buy” recommendation on Vista Outdoor Inc at the closing market price of USD 29.77 (as on 7 January 2021) with lower double-digit upside potential based on 12.94 Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Co-Diagnostics Inc – Anticipates Reporting Highest Quarterly Revenue.

Co-Diagnostics Inc (NASDAQ: CODX) develops innovative molecule tools for detection of diseases, agricultural applications, and liquid biopsy for cancer screening.  

Investment Rationale – Speculative Buy at USD 10.78

• Over the past two years (Q3 FY18 to Q3 FY20), CODX reported stellar growth in revenues with CAGR of ~4571.19%.
• From the technical standpoint, 90-Day RSI (46.72) is supporting the uptrend in the stock.
• With the emergence of Covid-19 and the recent surge in cases, there is a great potential for Covid-19 test requirement.
• The molecular diagnostics market is fast-growing sector of the Vitro diagnostic market, and the Company can tap the market opportunities with the availability of substantial resources.

Risk Assessments

• The Group began operations in April 2014 and having limited operating history, and it also incurred a net loss for Q1 FY20. Therefore, the potential investors should be cautious of challenges encountered by new enterprise.
• The growth trajectory is dependent upon the demand for Covid-19 tests.
• The stock fluctuation is also dependent upon its ability to enter new markets, ability to obtain financing, test approvals, and macro-economic uncertainties.

Recent News

6 January 2021: As per preliminary estimates, unaudited quarterly revenue for Q4 FY20 is projected to be the highest in the Company’s history and shall surpass even analyst estimates, ranged from US$24 million to US$25.98 million.

Financial Highlights for the nine months ended 30 September 2020 (as on 13 November 2020)

 (Source: Company Website)

• For 9M FY20, CODX generated US$47,407,555 of revenue against US$106,408 in 9M FY19, primarily to sales of LogixSmart COVID-19 test.
• Total operating cost surged to US$9,464,699 in 9M FY20 from US$4,317,125 in 9M FY19.
• With income tax benefits of US $2,914,781 and enhanced sale of LogixSmart COVID-19 test during 9M FY20, net income soared to  US$29,671,348 from a loss of US$4,460,551 in 9M FY19.
• As of 30 September 2020, there were marketable investment securities of US$6,050,000 and cash and cash equivalents of US$21,230,362, which underpins a strong liquidity position.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

 Conclusion

Following the strong 9M FY20 and Q3 FY20 performance, CODX has increased focus on research and development to support the development of additional Logix Smart tests, which underpins profitability in the future. Moreover, the Company has the ability to enter new markets as well. With radical changes created with the emergence of the COVID-19 pandemic, the Group shall remain profitable and have substantial resources to pursue market opportunities. Stock 52 week High and Low were USD 30.99 and USD 512.00, respectively.

Based on business capabilities, industry prospects, and valuation mentioned above, we have given a “Speculative Buy” recommendation on Co-Diagnostics Inc at the closing market price of USD 10.78 (as on 7 January 2021) with lower double-digit upside potential based on 9.29 Price/NTM Earnings (approx.) on FY20E Earnings Per Share (approx.).

*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.

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