At US$71.49, Is Johnson Outdoors Inc. (NASDAQ:JOUT) Worth Looking At Closely?

Johnson Outdoors Inc. (NASDAQ:JOUT), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Johnson Outdoors’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Johnson Outdoors

What Is Johnson Outdoors Worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 16.29x is currently trading slightly above its industry peers’ ratio of 11.49x, which means if you buy Johnson Outdoors today, you’d be paying a relatively sensible price for it. And if you believe Johnson Outdoors should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Johnson Outdoors’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Johnson Outdoors?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Johnson Outdoors' earnings over the next few years are expected to increase by 37%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? JOUT’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at JOUT? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on JOUT, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for JOUT, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found 3 warning signs for Johnson Outdoors (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

If you are no longer interested in Johnson Outdoors, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.