Firearms manufacturer Smith & Wesson Brands (NASDAQ:SWBI), formerly known as American Outdoor Brands Corporation, is one of those companies that’s almost a political statement. Owning SWBI stock can be an expression of a particular set of beliefs or viewpoints about gun ownership or constitutional rights.
Or, you can take a more neutral stance and just own SWBI shares because you believe that the company has good profit potential. It’s not for everybody, but this stock can enhance a portfolio’s diversification with a well-established name that’s poised to prosper during these uncertain times.
It might appear to value investors that Smith & Wesson stock is overbought since the share price rallied hard recently. However the term “overbought” should only apply if a company can’t sustain its current level of revenue generation. Smith & Wesson should remain profitable as turbulence in the United States isn’t likely to cease anytime soon.
A Closer Look at Smith & Wesson Stock
In late July, Smith & Wesson stock was trading close to its 52-week high of $24.71. That’s quite impressive, considering it was as low as $5.41 in October of last year.
The bulls can cite the fact that SWBI shares ascended all the way up to $29.45 during the summer of 2016. This suggests that Smith & Wesson stock could conceivably go higher than its current price.
On the other hand, the bears could point out that SWBI rallied hard in the summers of 2007 and 2016, but coughed up those gains both times. Will that happen again in 2020? That, it seems, is the billion-dollar question.
The bears could also cite Smith & Wesson stock’s declining daily trading volume. Since early June, the volume has subsided in SWBI and that’s not good news for the bulls. A divergence between the share price and the trading volume could spell trouble. Therefore, the bulls will want to see more trader participation soon.
Nothing Like a Smith & Wesson
Let’s face it: many gun owners really like their guns. They represent an important means of personal protection for the firearm owners and their families. The idea of taking those guns away is absolutely abhorrent and almost unthinkable to some gun owners.
I was reminded of this when I read InvestorPlace contributor Josh Enomoto’s colorful description of his favorite firearm:
“Since you asked, my personal favorite is the Model S&W500. As the most powerful production revolver in the world, it truly packs a wallop. Firing one of these is like unleashing Satan from the gates of perdition. You don’t even have to use it for it to be an effective self-defense tool. No one is going to mess with you if you’re carrying this beast.”
I highly recommend reading his full article on seven gun stocks to own during the pandemic. It makes perfect sense that Enomoto put Smith & Wesson at the top of his list since it’s such a highly respected name among firearm owners.
Viewing Guns as a Necessity
The owners’ personal attachment to guns is so strong that interest in gun ownership actually increases when courts, legislators and lawmakers take anti-gun-rights actions.
This theory was put to the test not long ago when the U.S. Supreme Court chose not to review a number of appeals of measures that challenge gun rights. Those measures include a federal-level law banning interstate sales of handguns as well as local anti-firearm measures in California, Massachusetts, Maryland and New Jersey.
You might think that the Supreme Court’s decision would have a negative impact on Smith & Wesson stock. Yet, perhaps counterintuitively, SWBI shares gained 11% upon the announcement of this decision.
This lends credence to the notion that current and prospective firearms owners often tend to view guns as a necessity that’s under siege from errant legislators.
To this, we can add the fact that we’re in an election year into the mix. Plus, there are the recent civil-unrest incidents, which are still fresh in many gun owners’ minds. These factors present potent catalysts for sustained firearm sales and revenues through 2020 at least.
The Bottom Line
Smith & Wesson is typically viewed as a leader among firearms names. Given the turbulent times we’re living in, along with the legislative threats against gun ownership, firearm sales should remain strong in 2020 and Smith & Wesson stock is likely to shoot for higher prices.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.