Smith & Wesson Holding Corp (NYSE: SWHC) had a very solid fiscal year. And, it looks well on its way to another one.
There are two things that are the main drivers of its growing momentum: the presidential election and increased domestic terrorism.
On one hand, you have two candidates with polarized views on gun control. Donald Trump is emphatically against any more bans or restrictions on guns and gun purchases. Hillary Clinton, however, is very interested in restricting the sale of certain types of guns and wants to make owning a gun a more intensive process.
That means both sides are stoking the rhetoric. And, like good politicians, they are making their cases in dramatic fashion. You see, in Washington, between Capitol Hill and the White House, the process is built to make sure nobody ever gets their way without giving up something. That’s politics.
Right now, as long as there is gridlock in Congress, nothing Clinton would do will fly through the House and Senate. That means the status quo remains, which to gun rights advocates means it’s prime time to buy more guns.
If the Democrats end up taking the House, then there’s an even greater chance that Clinton would have a much easier time getting significant gun control passed. Obviously, the turmoil and the fact that the polling puts the two candidates in a dead heat only fuels the fears of many gun owners.
The Flip Side of the SWHC Coin
Fear’s other face is showing up in domestic terrorism. Whether it’s mass shootings by a deranged lone wolves, or people with ties to terror groups, the fact is they are increasing, not decreasing.
Many gun advocates believe the solution to this crisis is arming themselves to protect against the threat. Where gun control groups say getting guns off the street is the answer, gun rights people are passing open-carry laws (laws that allow individuals to carry weapons on them with a special license) across the nation.
But, regardless of the drivers and the merit of one view over the other, fear sells. And SWHC stock is a direct beneficiary of this instability.
SWHC Stock Wins Regardless
In mid-June, SWHC reported its Q4 and fiscal year numbers, and they were great. The company has now eliminated all debt, which leaves it with a $175-million line of credit. Net sales for Q4 were up 22% year over year, and the firearms division grew by more than 20%.
Further, SWHC is guiding higher for Q1 as well as the full year. Management is expecting revenue to be up 32%, and given the end of “silly season” that may be conservative.
In July, SWHC put that line of credit to work; it bought Crimson Trace and Taylor Brands. The former makes laser sights that SWHC has used on its firearms, so now it’s a division of SWHC. Taylor Brands is a maker of tactical knives and specialty tools and was purchased by SWHC’s Battlefield Technologies division.
Smith & Wesson has now consolidated two of its prime vendors as new sources of revenue for the larger company.
The stock is up 34% year to date, but it’s still only trading at a 17 P/E, which is slightly above the S&P 500’s average P/E. But, SWHC has a lot of real growth ahead, not just share buybacks.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.