POWW
Outdoor Holding Company
$2.23
Cyclical & Capital-Intensive
70%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Undervalued
Trading 65.3% below fair value
You pay
$2.23
Bear
$5.35
Fair
$6.43
Bull
$7.51
Bear
$5.35
+139.9%
$0.27 × 18x + net cash
Fair
$6.43
+188.3%
$0.27 × 22x + net cash
Bull
$7.51
+236.8%
$0.27 × 26x + net cash
Key Value Driver
Through-cycle normalized EPS ($0.27)
Implied Market Multiple
8.3x
Summary
Using 7-year normalized EPS of $0.27 at a 22x cycle multiple, the base-case value is $6.43 per share. P/TBV cross-check: 4.5x.
Warnings
Price-to-book value of 4.5x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing