Gun stocks are still firing

Smith & Wesson's buyback plan shows confidence in continued upside for this sector.

By InvestorPlace Oct 2, 2013 10:28AM

An attendee walks through the Smith and Wesson booth during the 2013 NRA Annual Meeting and Exhibits at the George R. Brown Convention Center on May 3, 2013 in Houston, Texas. © Justin Sullivan/Getty ImagesBy Jim Woods


iplogoWhen you own a firearm, you want to have confidence in both your ability to use it properly in an emergency situation and in that firearm's ability to perform without malfunctioning. Similarly, when you're at the helm of a company, you want to have confidence that your stock is going to continue to perform.


An expression of such confidence was seen today when gun-maker Smith & Wesson Holding (SWHC) announced plans to buy back up to $15 million of its stock.


In a statement accompanying the announcement, CEO and President James Debney said, "Given the strength of our balance sheet and our expected cash flow from operations, our Board has approved the repurchase of an additional $15 million of our common stock. We continue to believe that investing in our own company is presently one of our greatest opportunities."


That is the kind of confidence Wall Street likes to see from a CEO and management, so it's no surprise that SWHC stock was up nearly 2 percent in early Tuesday trade.


For Smith & Wesson, seeing a jump in shares is nothing new. During the past two years, SWHC stock has had an incredible run, shooting up nearly 340 percent. Year-to-date, the stock has seen a much more modest (yet still impressive) move higher of nearly 30 percent.


The gains in Smith & Wesson shares have been the result of strong revenue and earnings -- metrics that have been fueled by a gun buying public fearful that the current leadership in Washington is intent on restricting gun rights. Of course, efforts to pass gun legislation in Congress were unsuccessful, but still, the threat of an impingement on Second Amendment rights caused gun lovers throughout the country to stock up on arms -- and investors to pile into gun stocks.


This certainly is the case with Smith rival Sturm, Ruger & Co (RGR), as that company also has seen big jumps in revenue and EPS over the past two years. The gun-maker also has seen a big spike higher in its share price, with a two-year gain of 141 percent. Year to date, RGR stock actually has outpaced SWHC, rising nearly 38 percent.


One reason why RGR shares have outperformed SWHC is due to a correction of sorts in Smith’s share price in August and early September leading up to, and immediately following, the company’s second-quarter and full-year outlook revision. Despite having reported Q1 sales of $171 million, or more than a 25 percent year-over-year increase, and better-than-expected earnings of 40 cents per share, the stock fell on the company's tailored estimates going forward.


The reduced forecast calls for Q2 sales to in the $135 million to $140 million range, which is below expectations for sales of $143 million. EPS is estimated by Smith to come in at 20 cents to 22 cents, also below expectations for EPS of 29 cents. The company cited the implementation of a new software program and the resulting delays in production for the shortfall.


For SWHC, I suspect the August-September slide was more of a misfire than any kind of real problem for the company and the stock going forward. Apparently, the company feels that way too, hence its plan to buy back those additional shares.


I have said this in the past, but it bears repeating once again: When it comes to firearms, there is an attitudinal bid higher in the shares of both SWHC and RGR that stems from what I think is a permanent change in the mind-set of a significant segment of America. This new mind-set is, in my opinion, a justifiable fear of more federal control over our lives in general, and in particular more control over guns.


Until this attitude is altered, and until gun-makers actually see their fundamentals flounder, I will remain bullish on firearms stocks.


As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.


More from InvestorPlace

Oct 2, 2013 10:53AM

The liberals won't be happy until only the criminals have guns. They are such pathetic cowardly sissies. No wonder they need the government for every aspect of their life. They want and require a cradle to crave nanny state. Sorry but that isn't freedom. That's dependence.

Oct 2, 2013 11:13AM
The Left always wants to disarm the citizens.  What this means is they can use government to seize the earnings and work of others to redistribute to their supporters.   Our founding father created the second amendment to protect us against run away government.   This was their intention and is beyond dispute. 

The reason for an armed citizenry is to prevent us ever becoming a Syria or Nazi Germany.  

If we ever surrender our Second Amendment rights, what will protect us from government eliminating our other rights?    

Our government has grown to large.  It is time to shrink it.

Until this attitude is altered, and until gun-makers actually see their fundamentals flounder, I will remain bullish on firearms stocks.



If ones wants the attitude to change, get rid of the Present Administration ASAP. 

Oct 2, 2013 1:32PM

TAXPAYER 1:Hey, I love this country.You`re the one always bellyaching about

Obama.I retired and living the good life.

Oct 2, 2013 12:46PM

TAXPAYER 1: Man you got a lot of hate in you.Try calling Dr.Phil or checking into a mental

health facility.If you think you need guns to survive you have serious problems.Maybe I`ll

read about you like that guy at the DC Navy yard.

Oct 2, 2013 11:19AM
This article will bring out the right wing haters.
Oct 2, 2013 11:39AM

MIRAGE GUY:Even you`re not that stupid.I feel sorry for losers that live in bad areas

and think they need a gun.

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