What happened

Shares of American Outdoor Brands (NASDAQ:SWBI) traded up more than 11% on Wednesday after the company was upgraded to a buy at Craig-Hallum Capital. It's been a difficult year for the firearm and outdoor accessories maker's shares, but at least one Wall Street bank is ready to call a bottom.

So what

Shares of American Outdoor Brands have lost nearly half of their value so far in 2019 alone and are down more than 70% since late 2016 on anemic demand for firearms and efforts by some large retailers to restrict firearms sales. The company, best known for the Smith & Wesson brand, has also been in the process of streamlining distribution with a new centralized facility in Missouri and has had to absorb added costs in recent quarters during the transition.

A gun and bullets on a table.

Image source: Getty Images.

Analyst Steven Dyer of Craig-Hallum said in a note on Wednesday the worst is over for American Outdoor Brands, upgrading the company to a buy and leaving his $10 per share price target unchanged. The analyst said the company's valuation is "extremely attractive."

Indeed, even after the share boost on Wednesday there is still more than 40% of upside to reach Dyer's $10 price target.

Now what

It's easy to say American Outdoor Brands trades at a discounted valuation, but that doesn't necessarily make it an attractive value stock. If history is a guide, election year rhetoric could give a boost to firearm sales in 2020, and American Outdoor Brands should have much easier comparisons in the quarters to come thanks to the weak 2019 results and the savings expected from operating out of the Missouri distribution center.

That said, there is reason for concern about a potential long-term secular decline in firearms, or at least a growing appetite by U.S. voters to accept more limitations on sales. Sometimes stocks are cheap for a good reason. Investors should be cautious buying into American Outdoor Brands even at these prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.