What happened
After first soaring, then finally pulling back in late-week trading last week, shares of Smith & Wesson Brands (SWBI -0.32%) are rebounding on Monday. After rising by nearly 10% earlier in the session, they eased back, but were still up by 4.3% as of 1:30 p.m. EST.
So what
There doesn't appear to be any particular catalyst behind Monday's move higher. Nevertheless, stocks across the sector -- Sturm Ruger, Vista Outdoor, and Ammo Inc. -- were also all up modestly. One possible reason is that investors have reassessed the chances of new gun legislation passing through a Democrat-controlled Congress and White House, and thinking that it's not so great as it at first appeared.
Or investors may be thinking that the chances of tighter gun laws passing are as great as they appear ... and that the perceived risk of that will boost gun sales in the near term.
Image source: Smith & Wesson.
Now what
Historically, this is how things have worked in Washington. Proposals of assault weapon bans, tighter regulations on who can buy firearms, and similar legislative efforts have consistently spooked firearms aficionados into buying more guns "while they still can," boosting sales. Even if the promised legislation doesn't pass, the revenues remain.
The bigger question for investors is what will happen after this dynamic plays out? How does Smith & Wesson stock look over the long term?
Well, right now, Smith & Wesson stock actually looks very attractive with $245 million in trailing free cash flow and a market capitalization of only about $1.1 billion -- a price-to-free cash flow ratio of about 4.5. With no net debt on its books and analysts forecasting 15% annualized earnings growth over the next five years, the gunmaker actually could turn out to be a smart play for the short term ... and the long term as well.
