Huge Value In Johnson Outdoors

Lukas Wolgram profile picture
Lukas Wolgram
4.12K Followers

Summary

  • Johnson Outdoors has sold off from over $100 per share to the mid-$50s per share creating a compelling opportunity in this small cap stock.
  • Johnson Outdoor's portfolio of great wholly-owned brands make the company very robust.
  • The company's cash pile has reached $150 million, or around 27% of the company's market capitalization.
  • This article on the company outlines the brands Johnson Outdoors has acquired over the years and goes over the multiples valuation of the business.

Johnson Outdoors (NASDAQ:JOUT) manufactures and sells outdoor gear for camping, fishing, diving and watercraft recreation. They own several of the top brands in each respective industry. Recently, the stock has fallen significantly from over $100 to now near $55 per share. In this article, I examine whether Johnson Outdoors is a buy. I go over the brands and what I believe makes the company a great business, and then go over a multiples analysis.

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Johnson Outdoors History

Johnson Outdoors started as a merger between Johnson Reels and Minn Kota Motors in 1970. Since then the company has acquired and integrated numerous brands of various outdoor fishing, camping, diving and water recreation manufacturers. The company is now made up of some the best, most recognized brands in their respective markets. Chances are you've used the product of at least one of these brands before if you're an outdoor adventurer. While I go over briefly what each brand does in this article, you can find a lot more detail at each brand's website which I've linked in the first mention of each brand below, and by reading Johnson Outdoor's 10-K report.

Source: Johnson Outdoors website.

The Brands - Fishing

In the fishing segment, Johnson outdoors owns Minn Kota, Humminbird, and Cannon. Those familiar with fishing gear will recognize all of these brands. Minn Kota manufactures fishing boat motors, while Humminbird makes GPS and sonar equipment for navigating and locating fish. Cannon makes downriggers for controlled-depth fishing. Because of Johnson Outdoor's ownership, these brands are in a unique position to combine products. A great example of this is the one boat network.

This allows fishermen to concentrate on fishing rather than navigation. I think integration between brands is a significant edge over competing products. The fishing line represents the vast majority of Johnson Outdoor's revenue at 72% of total revenue in fiscal 2018.

The Brands: Diving

Johnson Outdoor's diving division consists of the brand SCUBAPRO. The brand has a complete line of diving gear that includes regulators, buoyancy compensators, dive computers, gauges, wetsuits, masks, fins, snorkels, apparel, and accessories. The company sells these products to specialty retailers and direct to consumer through the Scubapro website. The products target higher-end divers.

Source: SCUBAPRO 2019 catalog.

Diving is Johnson Outdoor's 2nd largest segment at a little under 15% of total revenue. This segment has been growing revenue at under 10% over the last few years, but remains solid in the industry. At around $80 million in 2018 sales, Scubapro still has room to grow in the diving equipment industry, which is expected to reach $1.38 billion by 2022.

Scubapro's social media presence is growing with over 200,000 followers on instagram. This is important going forward as the company needs to reach newer generations of divers to maintain growth and interest in new product launches in the future.

The Brands: Camping

The camping segment consists of the brands Eureka! and 2012 acquisition Jetboil. Eureka! makes recreational camping gear that includes tents, sleeping bags, camping chairs, camping tables, camping stoves, and various other camping accessories. Jetboil is a fascinating company that designs and makes innovative camping stove and cooking systems.

Surprisingly, camping is a small part of Johnson Outdoors. Revenue for the segment was around 7% of total Johnson Outdoors revenue. There remains significant room for growth here either through expanded products from existing brands, or more acquisitions. The camping segment hasn't seen growth for several years, yet I believe the brands remain strong. While management was reluctant to announce any new product lines in their latest earnings call, I would expect these brands to continue developing and marketing new products.

Image source: Jetboil blog.

The Brands - Watercraft Recreation

Finally, Johnson Outdoors manufactures and sells canoes and kayaks under the Ocean Kayak and Old Town brands. These brands target the mid to high end segment of the market. Both brands tailor to both fishermen, and more casual adventurers.

casting from a fishing kayakImage source: Old Town blog.

Both brand's products are manufactured in one facility in Old Town, Maine. This segment also includes Carlisle paddles and other accessories manufactured by third parties.

Watercraft sales have been in decline for a few years, it remains to be seen what the future is for the watercraft brands and Johnson Outdoors.

Competition

Johnson Outdoor's brands are not without plenty of competition. Humminbird competes directly on many products with Garmin (GRMN), while Minn Kota competes with publicly traded Brunswick Corporation's (BC) Motor Guide brand. Private company Navico is also a competitor. The camping side of the business competes with many brands, notably The North Face, owned by VF Corporation (VFC). Diving has few publicly traded competitors, but many privately owned competitors from around the world. Finally, many companies compete in the kayak and canoe segments, too many to list.

Johnson Outdoor's strong brands and reputation have helped them compete in the past, but that doesn't mean they'll continue to retain or gain market share in the future. Many of these products come down to innovation. Who can make the latest and greatest. In my opinion, Johnson Outdoors has done well initially acquiring unique product companies such as Jet boil, but eventually, the competition seems to catch up. The company often has product release cycles of several years for almost every brand. This tends to lead to years with a lack of excitement from investors, as few new products are released to boost revenue or profits. 2019 has been no exception here.

Peer Multiples Comparison

Comparing Johnson Outdoors to some of its competitors that I mentioned earlier shows that the company is undervalued relative to peers.

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Even this 12 P/E ratio doesn't tell the whole story though. Using some back of the envelope math illustrates further value in JOUT. My estimate for NOPAT in 2019 is $49,870,000. The company has no debt and thus very little or no interest expenses. For simplicity, let's say the company earns $50M in fiscal 2019. There are 10,050,000 shares outstanding at $56.00 per share, giving the company a market cap of $562,800,000. The company has $150,000,000 in cash on the balance sheet. Taking the cash out of the current market cap results in $412,800,000. This is essentially what investors are paying for the earnings power of the business once cash is removed. Now let's calculate this as a multiple of earnings. $412,800,000 / 50,000,000 = 8.26. The company is trading at a cash adjusted 2019 earnings multiple of just 8.26. That is unbelievably inexpensive, and probably undervalued.

A couple of other common multiples also reveal value here. At a market cap of $562.8M, the company is trading at 1.74 times book value. With my estimated 2019 sales of $533M the company trades at 1.0 times sales.

Conclusion

Johnson Outdoors has a strong track record of making good acquisitions that pay off in the long run, but recently the stock and company have struggled to find growth. Despite this, the company is still quite profitable and has built up a large pile of cash of around $150 million. In the fiscal Q3 conference call management was asked about the building cash. They essentially said they will wait until they can find more reasonably priced acquisitions to spend the cash. The company trades at a cash adjusted P/E ratio of around 8. This is low both historically and relative to peers. There is tremendous value in the long run in this stock.

This article was written by

Lukas Wolgram profile picture
4.12K Followers
Check out my FREE and PAID substack newsletter Uncommon Profits here: https://lukewolgram.substack.com .      I discuss 1-2 well-researched investment ideas every month as well as updates on my core holdings for subscribers. Ranked #1 on Tip Ranks top 25 financial bloggers for accuracy as of January 1, 2021. Currently ranked #20 overall financial blogger as of June 1, 2021. I focus mostly on small and microcaps, as well as tech stocks and a few other great businesses.

Disclosure: I am/we are long JOUT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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