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Why Smith & Wesson Holding Corp's Shares Plunged 18% in April

By Travis Hoium - May 4, 2016 at 5:06PM

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Could the momentum of gun sales be slowing in the U.S.?

Image source: Smith & Wesson.

What: Shares of gun maker Smith & Wesson Holding Corp (SWBI 2.97%) fell 18% in April, according to data provided by S&P Global Market Intelligence, after some negative data was released about the pace of gun sales.

So what: The FBI's National Instant Criminal Background Check System showed a 13.2% decline in background checks between February and March. This was following speculation by investors that gun regulation could be on the agenda after the next election, driving a wave of gun purchases in the meantime. At least for one month, that doesn't seem to be the case.

The other notable news item during the month was that families of the victims of the 2012 Sandy Hook massacre will be able to sue the company over the legality of selling the AR-15. This could bring the debate over the semi-automatic rifle's legality into court, which Smith & Wesson would rather avoid.

Now what: I wouldn't read too much into either of these news items, because they could just be short-term setbacks for the company's sales. And with shares now trading at 13.4 times forward earnings estimates, there appears to be some value in SWHC. Keep an eye on the pace of gun sales in coming quarters to see if there are indications that election cycles aren't driving greater gun ownership, because that could adjust how much growth we can expect going forward.

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