As I learn more and more about the behavior of stock markets, I begin to understand that, in the short term at least, they make no sense. There are many examples of this phenomenon that I've come upon recently, but the one that sticks out for me is what has happened to the share price of American Outdoor Brands (NASDAQ:AOBC) in light of the company's recent earnings announcement. The shares are down around 11% from their pre-announcement price, and that makes no sense to me. In my opinion, investors should take advantage of the disconnect between the share price and the fundamental value here. The real value here is the fact that the market seems unaware of the fact that management is perennially pessimistic in its forecasts. I believe that investors have reacted to the forecasts without reviewing how excessively pessimistic prior forecasts have been.
Why I Like The Company
I like the company primarily because it generates a nice double-digit return on assets (in the order of 17.75% at the moment) and a very decent return on equity of around 34%. Also, this is certainly not a new trend with American Outdoor Brands. The company has been earning an extraordinary amount of income for a very long time. For instance, as demonstrated by this chart, both revenue and net income have been growing nicely since.
