This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Have We Passed Peak Smith & Wesson?

NEW YORK (TheStreet) -- Since late in 2011, Smith & Wesson Holding  (SWHC - Get Report) has been a stock on a tear.

The stock was selling at well under $3 per share as late as November 25, 2011. In early January, it peaked at about $15. It now trades at slightly under $12 a share.

Management can hardly be blamed. The stock looks dirt cheap, with a price-earnings multiple of 8.4. Revenue around 42.5%from 2012 to 2013. It reported net income of $81.4 million out of last year's $587.5 million in sales. (Smith & Wesson reports on a May fiscal year, so the most recent fiscal year ended in April.)

The company is in the process of buying back $100 million in shares, and has a current market cap of $667 million. 

But it's increasingly likely we have reached peak gun.

Quarterly revenue peaked in the fiscal fourth quarter of last year, at $178.72 million, and stood at $139.29 million for the quarter ended October. The company reports its January quarter after the bell Tuesday.

Part of the problem for Smith & Wesson is demographics. While sales spike when gun restrictions are a political issue, they tend to fall back after the scare is over. Pew Research has tracked a steady decrease in the percentage of Americans who have guns in their home, from 49% in 1974 to 34% in 2012.

Gun ownership tends to be highest among older, white citizens in rural areas, according to the survey, and gun owners skew Republican.

Mass shootings and calls for gun-sale restrictions have the perverse effect of causing gun sales to spike, but can Smith & Wesson continue making a growth case based on that kind of fear?

Smith & Wesson is best known for handguns, and its biggest problem may be competition within the niche from Sturm, Ruger & Co. (RGR), which is up 600% in value over the last five years, triple the gain found in Smith & Wesson.

Sturm, Ruger passed Smith & Wesson in total sales during 2012, and seems to be extending its lead. It reported its Christmas quarter and full-year sales a month ago, $181.9 million for the three months, with full-year sales of $688.28 million. RGR also brings more of its revenue to the bottom line, with net income reaching $26.57 million for the Christmas quarter.

Sturm, Ruger recently bought its third manufacturing plant, in North Carolina, to go along with plants in New Hampshire and Arizona. Smith & Wesson's plants are concentrated in New England.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
SWHC $13.53 -1.20%
AAPL $129.95 -0.36%
FB $79.32 -1.40%
GOOG $562.93 1.30%
TSLA $204.00 -1.50%

Markets

DOW 18,187.03 -27.39 -0.15%
S&P 500 2,110.63 -0.11 -0.01%
NASDAQ 4,980.1430 -7.7470 -0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs