Smith & Wesson's (Nasdaq: SWHC) earnings report last week wasn't the sort of news you'd expect to spark a 14% surge in stock price -- at least not on the surface.

Net profit for the fiscal fourth quarter of $0.02 per share dropped by half in comparison with last year's Q4. While S&W beat earnings, it had to rely on adjusted earnings that exclude charges to do so. (Adjusted earnings per share are expected at $0.06.) What's more, such charges subtracted $1.44 from S&W's take for the year, resulting in a fiscal 2011 loss of $1.37 per share.

So that's not really great news -- again, on the surface. To see why S&W is surging, you have to dig deeper. On the cash-flow statement, for example, we find S&W generating nearly $19 million in free cash flow for the year just ended. That's quite a lot of money for an enterprise currently valued at just $247 million. It gives the stock an EV/FCF ratio of 13, which is in turn quite a low number for a company that most analysts expect to grow at 14.5% per year over the next five years.

Gunning for growth
Speaking of growth, perhaps the best news we got last week was that S&W predicts fiscal 2012 revenues of about $430 million, or 10% higher than in 2011 (2011 was up from 8% from 2010.) Such growth looks lowball in light of a backlog that's increased 153% sequentially. Inventories are stable, and accounts receivable are down sharply in comparison with the year-ago quarter. This tells me S&W will be making a lot of new guns and probably selling them for strong margins over the coming quarters to keep up with demand.

What's sparking the demand? It's hard to be certain; management says it's strong across "nearly all firearm product lines." Adding fuel to the fire, I suspect, are new concealed-carry gun laws in Wisconsin, Wyoming, and Ohio, that may be encouraging buyers to purchase smaller handguns. This could be especially good news for S&W rival Sturm, Ruger (NYSE: RGR), whose LCP .380 compact handgun consistently ranks among the hottest sellers at online gun superstores. It further suggests strength in coming quarters at ammunition makers such as Olin (NYSE: OLN) and Alliant TechSystems (NYSE: ATK), and at guns 'n' ammo retailers such as Cabela's (NYSE: CAB) and Dick's Sporting Goods (NYSE: DKS).

For the record: Ruger, Olin, and Cabela's report later this month. Expect numbers from Dick's and Alliant in August.

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