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SPWH - Real, Current Potential

|Includes: Sportsman's Warehouse Holdings, Inc. (SPWH)

After what is reasonably thought of as a failed IPO, with first the initial underpricing and now the already occurred devaluation of the equity, Sportsman's Warehouse nevertheless looks pretty solid. You could make the case SPWH made out great on the IPO and now that the devaluation has occurred a good point of entry now exists.

Now let me be straight, I don't approve in any manner with their balance sheet, as they're a typical private equity sell out and now public kind of company. They exist off their fundamentals, I'm sure their credit is good but other than that they have no cover by way of a robust balance sheet. I suppose the possibility exists that they expand too hard, a significant consumer spending depression happens, and they go out of business. Very low probability though. They are set to open 8 stores in 2015. That will be a ~16% increase in current store counts, and assumed a potential increase of 10-20% in revenues. At just 3% NI margin of roughly ~700 million sales they'd be trading at 12x earnings at the current close of $5.95.

Assuming a 10% CAGR in store count per year they should have over 75 stores in 5 years, which should produce a billion in sales easy. If this share price doesn't move you're looking at a retailer trading at .25x sales.

I think if they manage it right, steadily, they could maintain 30 million in profit a year within 3 years and keep going from there. So with a 5-year window, they should be able to garner a very normal 15x sporting goods retailer valuation at some point in time, which would lead to a 450 million valuation.

That leads to a price target of $11.25.

I'll reiterate from the title, imo it's very real and current potential.

Disclosure: The author is long SPWH.