You Could Call This Stock a Real 'Barn' Find

Few stocks can match Boot Barn's growth rates following its 2014 initial public offering. If management guidance for fiscal 2022 (ends Mar. 31, 2023) proves accurate per share sales will have almost quadrupled, cash flow will have grown by nearly 800% and EPS by greater than 100%. Continuous shareholders made out well with 273% returns. That is good, but far from what would have been expected based on actual value added. Why is that? BOOT peaked at $134.50 last November but has since sunk back to south of $60. Price-to-earnings contraction from 21.5-times to only 9.8-times hurt holders who didn't sell near the top, but makes for an incredibly cheap entry point for those looking to get long the shares today. P/E expansion appears in the cards once EPS growth resumes. The combination of growing earnings times higher multiples is how fortunes are made. The following two graphics came directly from the end of June quarterly results call. BOOT is growing via organic means (increased same store sales and profits) plus steady increases in total units operated. Newly opened stores have been exceeding expectations and there appears to be plenty of places left to expand the firm's physical store footprint. BOOT has an enviable 36% compound annual growth rate (CAGR) and yet a laughably low Price to Earnings to Growth Ratio (PEG) of just 0.3. The 11-P/E shown below came when BOOT sold for around $70. It is much lower now, with the stock south of $60. What is BOOT really worth? I threw out the crazy high valuations from 2014 and 2015 before calculating a typical P/E of about 16.9-times. Applying that same P/E to management's already tweaked guidance of $6.10 for fiscal 2022 generates a $108.16 target price by the end of March 2023. With EPS above $7 due in fiscal 2023 that goal might even prove too conservative. Yahoo Finance calls Boot Barn undervalued. They look for a rebound to $100 by this time next summer. The implied gain of 67.5% would still leave BOOT $34.50 below last November's peak. Independent research house Morningstar is also enthusiastic about BOOT's future price action. It calls present-day fair value as $95.86 and labels the stock as a 5-star buy. Quantitatively-focused FastGraphs thinks Boot Barn's normalized P/E is 20.5-times. That is not crazy considering its historical profit growth. If it rebounds to that type of valuation it could easily fetch over $120 by next April and about $134 by that point in 2024. Whichever source you think will be most accurate there is clearly tons of upside potential with only a modicum of risk. Owning BOOT shares outright is a good way to play. Option-minded traders could also benefit through short sales of naked puts out to Feb. 17, 2023. Actual pricing on the stock's $55 to $70 strike price puts, with BOOT at $59.94, is shown below. Worst-case, forced purchase prices dropped to between $47.90 and $54.80. Even the most aggressive of those if exercised prices is dollars below the low of Boot Barn's 52-week range of $58.51 to $134.50. The most conservative of the strike price ($55) offered 20% downside protection versus the trade inception price. Where else can you have $1,520 of potential gain per each 100-share commitment on an out-of-the-money put, while also getting that kind of safety margin? Boot Barn is an exciting growth company priced like a mundane, slow/no growth stock. Buy some shares, sell some puts or consider doing both.

You Could Call This Stock a Real 'Barn' Find

Boot Barn is an outstanding growth name now at a single-digit multiple. Here's how to play it.

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