Why Smith & Wesson Shares Shot Lower

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of gun maker Smith & Wesson (Nasdaq: SWHC  ) shot lower by as much as 11% earlier in the trading session after receiving an analyst downgrade.

So what: Both Smith & Wesson and its rival, Sturm, Ruger (NYSE: RGR  ) , were downgraded this morning by KeyBanc Capital Markets. Smith & Wesson was dropped to "hold" from "buy," while Sturm, Ruger was taken to "underweight" from "hold." The reasoning behind the move, according to KeyBanc's covering analyst, is that gun maker profitability may have peaked, and the research firm questions whether these firearm manufacturers can meet elevated expectations after such hefty runs in their share price.

Now what: As usual, we need to remind ourselves not to let a one- or two-day analyst move affect the long-term thesis we have on a stock. What we do know about Smith & Wesson is that it tends to be a very cyclical play -- i.e., it will move up when the economy is booming, and it's usually a good time to sell when the economy is weakening. With GDP growth a paltry 1.5% in the U.S. in the second quarter, KeyBanc's concerns could very well be justified, and with the stock trading at close to six times book value, there isn't much room for error in the company's coming quarterly report.

Craving more input? Start by adding Smith & Wesson to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 15, 2012, at 2:57 PM, jphelps1511 wrote:

    Funny, just a week ago you had an article that it's time to load up on SWHC.

  • Report this Comment On August 15, 2012, at 3:02 PM, TrackUltraLong wrote:

    jphelps1511,

    That's what makes us motley... a motley of different opinions from different authors/analyst's.

    TMFUltraLong

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