With its shares up nearly 3% in comparison to where they stood two days ago before the fiscal Q1 2014 numbers came out, Alliant Techsystems (NYSE:ATK). clearly has pleased investors with its results. But should investors be so happy Let's take a look.

In fiscal Q1, Alliant reported:

  • $1.1 billion in sales, down a small fraction of a percent from last year's Q1
  • Operating profit margins down 40 basis points at 11.6%
  • A share count of only 32.1 million, or 2% fewer shares than were outstanding a year ago
  • This resulted in diluted profits per share of $2.24 on the bottom line

Judging from Alliant's guidance, these numbers could improve even further as the year progresses. In the year ahead, Alliant told investors to expect sales of as much as $4.3 billion, with earnings of approximately $8.80 per share at the midpoint of guidance.

Free cash flow for the year now looks likely to exceed previous guidance, rising perhaps as high as $225 million. While that's not quite as good as what the net income figure works out to ($282.5 million, based on the 32.1 million diluted share-count), it's still better than investors were expecting, and much better than the $177 million in FCF that Alliant produced last year. This helps to explain the enthusiasm for the stock.

But should you buy the stock? At a P/E ratio of 11.5, and a probable price-to-free cash flow ratio of 13.7 (based on maxing out the guidance numbers), Alliant sells for a valuation comparable to rival arms makers such as Smith & Wesson (NASDAQ:SWHC), at 10.6 times earnings, and Sturm, Ruger (13.3x). That being said, it's hard to call Alliant Techsystems stock "cheap" given that few analysts believe it will grow earnings much faster than 1% or 2% per year, over the next five years. S&W's growth rate, in contrast, is estimated at 30%.

Key to Alliant growing out of this valuation trap, of course, is its acquisition of rifle-maker Savage Arms (actually, its "Caliber" parent), purchased earlier this year for $315 million. This deal may be working out better than expected. Alliant says it expects the new subsidiary to contribute perhaps $190 million in sales this year, and to produce operating profit margins of nearly 15%. That's a better number than Alliant as a whole is expected to produce. On the other hand, not so much better as to justify Alliant's paying 1.6 times sales -- when Alliant's own shares sell for just 0.7x sales.

What Alliant really needs to do is show it can grow sales, and earnings, at a respectable pace and without overpaying to "buy someone else's growth." Check in again in three months, and we'll see how that's going for Alliant.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Sturm, Ruger & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.