This Board Member Stocked Up On Smith & Wesson

Smith & Wesson Holding Corporation (NASDAQ:SWHC)’s stock is up almost 140% in 2012 (and 328% since a year ago), bringing the company’s market capitalization over $700 million (with average daily volume over the last three months at 2.5 million shares and a current per-share price of about $10.70, there should be plenty of liquidity for small to medium investors). Handguns and rifles are big business these days, with the company announcing a 48% increase in revenue in its most recent quarterly report compared to the same period in 2011. Yet John Furman, a Board member at Smith & Wesson, hasn’t been taking profits. Furman, who was buying the stock this past March at $6.80 per share, bought an additional 1,500 shares on September 25th through his defined benefit pension trust at an average price of $10.43. See more insider purchases and sales from John Furman.

RENAISSANCE TECHNOLOGIES

We would note that a number of insiders at Smith & Wesson Holding Corporation have been selling shares (research insider sales at Smith & Wesson), and so that makes us a bit cautious, but it is possible that they are just taking cash profits from the rise of the stock rather than expressing an expectation that business is about to get worse. Renaissance Technologies, which made its founder Jim Simons a multi-billionaire, increased its stake in Smith & Wesson during the second quarter to 2.2 million shares but this was only a small piece of the enormous fund’s portfolio (find some larger holdings of Renaissance Technologies from last quarter).

We’ve discussed the rise in Smith & Wesson’s revenues during the first quarter of its current fiscal year (the fiscal year ends in April, with Q1 ending in July). The company reported about $18 million in net income during the same period, compared to about $800,000 during the first quarter of the last fiscal year. Every category of the company’s firearms business showed an improvement in sales, with handguns- the largest source of business- doing well and sales of sporting rifles doubling. We think it’s an open question as to how sustainable this growth is; perhaps consumers are buying guns ahead of the U.S. elections out of concern that it will be harder to do so if President Obama is re-elected. Whether they are right (and gun sales fall) or wrong (in which case they would probably stay at about the same level of sales or decline) this would indicate slower growth for Smith & Wesson Holding Corporation if this is in fact what is driving sales growth. Wall Street analysts, meanwhile, are confident in future growth: the stock’s forward P/E multiple is a moderately cheap 11 and its five-year PEG ratio is 0.6, implying that the sell-side considers the stock significantly undervalued. Based on trailing earnings, however, the P/E is 22- not exactly cheap, and certainly requiring future growth to justify the current price.

Smith & Wesson can best be compared to fellow firearms manufacturer Sturm, Ruger & Company (NYSE:RGR) and TASER International, Inc. (NASDAQ:TASR). Sturm, Ruger & Company’s stock is “only” up 90% in the last year; it too saw large increases in revenue (50%) and earnings (67%) last quarter versus a year ago. It is actually a bit cheaper than Smith & Wesson on a trailing basis, at a P/E of 18, and it pays a 3.1% dividend yield. Growth expectations aren’t as high with a forward P/E of 16, but it’s hard to understand why it would so substantially underperform Smith & Wesson going forward; therefore, it might be a better value stock. TASER is priced for high growth at 29 times forward earnings; its revenues were up 33% in the second quarter of 2012 compared to the same period in 2011 but we think the firearm manufacturers are still better values.

Cabelas Inc (NYSE:CAB) is a sporting goods store that is particularly notable for selling hunting equipment including guns, while Dicks Sporting Goods Inc (NYSE:DKS), while larger and generally more diversified, also provides hunting equipment. The retailers are also more expensive than the handgun companies on a trailing basis, as they trade at respective P/E multiples of 23 and 25. Their quarterly growth numbers compared to the same period last year are about 10%- high, and possibly more sustainable than increases in gun sales, but we’re still skeptical of their value.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!