Smith & Wesson Holding Corp (SWHC) stock is shooting higher on Friday after the prominent gun manufacturer delivered incredibly strong fiscal fourth-quarter results.
It also guided for stronger-than-expected results in the current quarter — the good ol’ “beat and raise.”
So … what should we make of SWHC stock? With shares up 8% in early trading, is Smith & Wesson stock still a buy?
SWHC Stock: Attractive Metrics
As you may have figured, gun stocks like Smith & Wesson and Sturm, Ruger & Company (RGR) were in the spotlight earlier this week following the tragic mass shooting in Orlando on Sunday morning. Both SWHC and RGR soared on Monday as investors bet that the shooting would spark new talk about stricter gun control measures, which in turn would spark a short-term jump in firearm sales.
Both stocks gave up those gains as the week went on, but Smith & Wesson’s quarterly results show that it may indeed be worth a good percentage more than it was last week.
SWHC posted earnings per share of 66 cents on revenue of $221.1 million, which was up 22.2% year-over-year. Analysts were expecting EPS of 54 cents and revenue of $214.6 million.
Alas, it wasn’t just last quarter that impressed — it was guidance. Often, that’s the make-or-break part of an earnings report, since investors are inherently more interested in what’s happening tomorrow than what happened yesterday.
Tomorrow looks bright for SWHC stock. The company anticipates adjusted EPS between 49 and 53 cents, with revenues clocking in between $190 million and $200 million.
That crushed expectations. Wall Street was looking for EPS of 37 cents and revenue of $161.6 million in the current period.
The best part of that forecast is that it doesn’t factor a potential spike in short-term demand into the equation at all, despite that outcome being likely.
InvestorPlace contributor Lawrence Meyers recommended buying SWHC stock on Monday, citing its ubiquity and the secular popularity of firearms:
“SWHC sells through a variety of outlets. They have 14 distributors, which, in turn, spin out guns to over 10,000 independent retailers that account for 64% of consumer sales. You can buy their products in six big box stores, including Dick’s Sporting Goods Inc (DKS). They have two buying groups that push product to 600 retailers, and sell accessories online.”
Meyers also noted that annual handgun sales have been soaring for years now, “rising from 9 million in 2008 to 14.2 million in 2015.” It’s up 16.2% year-over-year. SWHC stock is bound to benefit from this increased demand going forward.
Trading at a price-to-earnings ratio of 16.4 (about 30% less than the 24.3 P/E of the S&P 500), Smith & Wesson shares may be a controversial investment for some, but they seem like a prudent buy at these levels.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.