A Cabelas Inc (CAB) Insider Is Bullish On Guns & Sporting Goods

One group of peers for Cabelas Inc (NYSE:CAB) consists of general sporting goods stores such as Dicks Sporting Goods Inc (NYSE:DKS) and Hibbett Sports, Inc. (NASDAQ:HIBB). These two stocks are also priced for moderate to high growth, with trailing P/Es in the 21-22 range. While Dick’s did experience 13% earnings growth in its most recent quarter compared to the same period in the previous fiscal year, performance was more modest on the top line. We’d therefore be concerned about the sustainability of this level of earnings growth, and given the high valuation would avoid the stock. Hibbett Sports, Inc. (NASDAQ:HIBB)’s business has actually been about flat, and while the sell-side is projecting earnings growth over the next year and a half we would not take their optimism at face value. We’d also note that 13% of the float is held short.

We’ve mentioned gun sales as a major driver of business at Cabela’s, and so we think that it’s appropriate to compare the company to Sturm, Ruger & Company (NYSE:RGR) and to Smith & Wesson Holding Corporation (NASDAQ:SWHC). Apparently many market players think that the rise in gun sales will slow: 20% to 25% of the float at these companies is held short. Last quarter Sturm, Ruger & Company (NYSE:RGR) revenue rose almost 40% compared to the first quarter of 2012, with net income rising at a slightly faster rate. The forward P/E here is 18, and dividend payments- at least over the last twelve months- actually give it a high yield. Recent growth has also been high at Smith & Wesson Holding Corporation (NASDAQ:SWHC), and the earnings multiples there are actually fairly low. With analysts expecting continued growth, this results in a low five-year PEG ratio.

As such, Smith & Wesson may be a better way to play a guns-focused thesis, and the stock certainly looks worthy of further research at this pricing. Cabela’s could also benefit from this continued trend, of course, and the earnings multiples are high enough that we could also consider it as a growth stock, but it might also be a good play to wait for another quarter or two of results.

Disclosure: I own no shares of any stocks mentioned in this article.