Source: Smith & Wesson.

The gun industry has always been controversial, standing at the center of a fundamental debate on a right that millions of Americans hold dear. As a result, it's not surprising to see shares of Smith & Wesson Holding (NASDAQ:AOBC) and other gun manufacturers go through intense periods of volatility. So far, 2014 has given shareholders another wild ride, with a gain of almost 30% earlier this year giving way to a huge plunge that has lopped off nearly half the stock's value from its spring high.

Along with rival Sturm, Ruger (NYSE:RGR), Smith & Wesson is the focal point of the gun debate in the stock market, drawing fire from gun-control advocates and often responding to current events and potential shifts in government policy toward the industry. After years of seeing revenue surge due to gun buyers' fears about the Obama administration's efforts to impose tighter laws on firearms sales, many believe the end of the gun boom might finally be here, and that has made Smith & Wesson shareholders nervous. Let's take a closer look at Smith & Wesson to see whether it can recover by the end of the year.

Stats on Smith & Wesson

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Source: Yahoo! Finance.

Why Smith & Wesson shot up and then got shot down
To understand Smith & Wesson's topsy-turvy 2014, you need look no further than the company's financial results. After riding a wave of momentum that pushed shares up 60% in 2013, Smith & Wesson still proved able to deliver impressive performance for its investors. Even after Sturm, Ruger plunged after its first quarterly report of the year in February, Smith & Wesson in March reported that quarterly income from continuing operations soared almost 35% on a 7% bump in sales. Those results were particularly impressive given a sharp drop in background-check volume that had many thinking the company would suffer declines in demand. Moreover, Smith & Wesson anticipated that its favorable trends would continue and boosted its full fiscal-year guidance.

But by midyear, Smith & Wesson had seen its fortunes change for the worse. Its fiscal fourth-quarter results included a nearly 5% drop in revenue, leaving net income flat. Yet even though those modest figures were better than investors had expected, Smith & Wesson also ramped down expectations for the full 2015 fiscal year, guiding for 3% to 6% less revenue and 7% to 13% lower earnings per share than investors had expected to see from the gun manufacturer. Despite assurances from CEO James Debney that the company was still taking away market share from Sturm, Ruger and other competitors, Smith & Wesson believes that more normal conditions could lead to a drop-off in sales as the rush toward greater gun purchases slows.

Source: Smith & Wesson.

Can Smith & Wesson fire back?
Even with the downbeat view, Smith & Wesson has plenty of prospects going forward. Even though overall gun sales have fallen, the company saw strong sales in the handgun segment, suggesting that trends in gun demand aren't uniform across the industry.

Moreover, some of the more troubling numbers reflect Smith & Wesson's own efforts to control its order flow. In the past, Smith & Wesson had massive backlogs of more than a year that reflected the huge demand for new firearms. But rather than disappointing impatient customers, the company worked with them to manage their order flow to deliver more efficient fulfillments and more accurately reflect future demand.

What bullish Smith & Wesson shareholders hope is that after investors adjust to the one-time impact of the company's new backlog management strategy, they'll be happier with Smith & Wesson's progress going forward in bolstering growth. Nevertheless, as political waters continue to shift, Smith & Wesson can expect the same volatility that has always come with the gunmaker's stock.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.