Cabela's Success Story a Lesson in Investing

NEW YORK ( TheStreet) -- Cabela's ( CAB) continued its move higher yesterday with a 12.5% jump, putting shares in uncharted territory and at a new all-time high. The reason for the jump, on an otherwise rather nondescript trading day, was an announcement by the company that it expects same store sales to be sharply higher (high teens) and earnings to be 10 cents to 15 cents above the current 48 cents a share consensus estimate for the first quarter.

This was the icing on the cake for a company that was once badly misunderstood by the markets. It also serves as a great lesson for investors; namely that the herd is often wrong, and that you've got to do your own homework. One well-known pundit, who shall remain nameless and has a very large following, once called Cabela's a "walking heart attack".

The company was simply not well-liked, for several reasons. First, there was Cabela's foray into banking and credit through its World's Foremost Bank, at a time when other retailers were ditching such businesses.

This was seen as a potential nightmare during the recession when credit charge-offs soared. But what the markets did not understand was that Cabela's Club Visa Card holders, not only have high credit scores, they also pay their bills. Company charge-offs during that bleak period were well below many other card issuers. There are now more than 1.5 million Cabela's club cardholders, with an average FICO score of 793.

CAB Chart CAB data by YCharts

Second, some had issues with the company's stores, which are massive in size, and were said to have a "museum-like" feel, with a lot of wasted space. Furthermore, the driving distances to even get to one of the company's 30 or so stores (at the time) could be rather long, depending where you live. But what was missed here is the fact that Cabela's is a destination; I've had friends who will spend all day in a store. You can even dine on elk or buffalo burgers while you are there; it's much more than just a hunting and fishing retailer, and it's easy to get lost in a store for hours.

The company now has 41 stores, having added six new locations last year. While that's still not a great number of stores given the size of the U.S., there's also a catalog business which generated 33.5% of total revenue during 2012. The company plans to open 12 additional locations by the end of 2014.

The stock has come a long way. In 2009, shares traded for less than $6 and now represent the much coveted "ten bagger." Year to date, the stock is up 45%. Shares currently trade for about 16.5 times 2014 consensus estimates.

There's little doubt that fears of gun legislation have bolstered the company's business as consumers stock up on guns and ammunition. But in the end, it's the hunters and fisherman who will continue to be loyal to the company and will continue to use their Cabela's Club cards to rack up rewards.

Started in the kitchen of one of the company's founders, Cabela's is a true American success story. It's also proved to be a great lesson in investing.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.