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Have We Passed Peak Smith & Wesson?

NEW YORK (TheStreet) -- Since late in 2011, Smith & Wesson Holding  (SWHC) 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.

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