Out at the shooting range I frequent, I'm often informed (and in language not always suitable for a family publication) that President Obama is out to "take our guns." In investing circles, this same argument gives reason to buy (because there could be short-term strength from hunters stocking up on firearms) or sell (because of long-term political threats) firearms maker Sturm, Ruger (NYSE: RGR), non-lethal weapons maker Taser (Nasdaq: TASR), ammunition makers Olin (NYSE: OLN) and Alliant TechSystems (NYSE: ATK), and ammo retailers Cabela's (NYSE: CAB) and Dick's Sporting Goods (NYSE: DKS).

So it's with some pleasure that I report today: Another quarter has passed, and the jackbooted stormtroopers of an alleged nanny state have yet to appear on my doorstep, demanding entry and forfeiture of my firearms. So far as I can tell, Obama has no interest whatsoever in my guns. Problem is ... no one else seems to want 'em, either.

At least, that's seems to be the upshot from yesterday's earnings report out of Smith & Wesson (Nasdaq: SWHC). For all that CEO Michael Golden spoke of "solid execution in firearms" and urged investors to take into consideration the "challenging year-over-year comparisons" S&W faced, the fact remains: Sales were down nearly 7% for the fiscal first quarter 2011. Earnings dropped by more than half to just $0.10 per share. And that's just the beginning of the bad news.

I'd love to be able to tell you this was a "one-quarter blip" on S&W's prospects, but after digging into the details of Thursday's report, I fear the tough times may only be beginning. "Firearm order backlog" dropped 58% between fiscal Q1 2010 and fiscal Q1 2011, while even the successful Perimeter Security division saw a 33% drop in backlog -- suggesting future sales could be worse than sluggish. Yet even as demand for S&W's wares is waning, S&W continues to pump more product into the pipeline. Despite the steep sales decline, S&W confirmed that its inventories of unsold goods are still climbing -- up 23% year-over-year.

Result: Free cash flow at Smith & Wesson -- which wasn't all that good even last year, at negative $6.2 million -- fell off the proverbial cliff in fiscal Q1 2011, as the company burnt through $14 million.

Foolish takeaway
Over the past 12 months, as Smith & Wesson boasted of "earning" a cumulative $26.2 million in "profits," the firm has in fact managed to generate free cash flow on negative $2 million. If you're going to worry about something posing a real threat to S&W -- this is the one you should be focusing on.

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.