Why Smith & Wesson Shares Barreled Lower

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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 manufacturer Smith & Wesson (NASDAQ: SWHC  ) shot lower by as much as 10%, following the release of its second-quarter earnings results.

So what: Smith & Wesson used the uncertainties of the potential for tighter gun controls to help drive sales for the second quarter up 48%, to $136.6 million, as net income leapt to $0.24, from $0.01 in the year-ago period. Furthermore, Smith & Wesson upped its upcoming quarterly EPS guidance to a range of $0.19-$0.21 versus Wall Street's expectation of just $0.16. Conversely, the company's backlog shrank considerably, to $333 million, down from $392 million just last quarter, which could signify that a slowdown in orders may be on the horizon.

Now what: Both Smith & Wesson and its prime rival Sturm, Ruger (NYSE: RGR  ) tend to benefit every time an election rolls around, because the uncertainty of gun control gets debated in ritualistic fashion. In similar déjà vu fashion, both companies' orders tend to taper off shortly after the elections are over, as investors realize that they've bid shares up far beyond the gun makers' potential. While I'm not overly pessimistic on Smith & Wesson, I'm not overly eager to jump into the stock here, even after today's nearly 10% tumble. For now, I'm perfectly happy being an innocent bystander and waiting on the sidelines, while keeping my eye closely on that backlog figure.

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.

Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On December 08, 2012, at 2:49 PM, Beatemup wrote:

    Those folks who are predicting the future based on the change in backordered product in one quarter are going to be surprised.

  • Report this Comment On December 10, 2012, at 2:24 PM, 6sigmaford wrote:

    Agreed - I may have bit way early, but I bought a small piece of the company. Forward estimates looked interesting. Any Congressional discussion will drive the faithful to the stores for arms or ammo.

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