Smith & Wesson Holding Corporation (SWHC) Undervalued On Long-Term Prospects

Investors became gun-shy last week as Smith & Wesson Holding Corporation (NASDAQ:SWHC) delivered a stellar quarter but looked timid on guidance. The firearm maker has seen shares rise more than 275% over a two-year period, but with the bulk of those gains going further and further away in the rearview mirror, the market and investors appear doubtful that the company will grow at its projected rate. Yet, as most Americans know, guns are a big business with demand that seems to rise no matter what. Trading at a seemingly discounted eight times forward earnings, Smith & Wesson may hold compelling upside to price-conscious investors.

Smith & Wesson Holding Corporation (NASDAQ:SWHC)

Beat
In the recently ended quarter, Smith & Wesson Holding Corporation (NASDAQ:SWHC) trumped not only the Street’s expectations, but apparently internal estimates as well. The company had previously guided for earnings of $0.37 per share on net income of $165 million, but came up ahead at $0.40 per share and $171 million. These sales represented a 26% gain over the prior year’s results.

In the United States, gun owners tend to buy more guns when there is threat of restricting legislation, and then continue to buy guns once that legislation fails to pass. During election years, gun stocks can fly high on either Democrat or Republican outcomes — one suggesting more gun control (read: buy up all the guns), while the other is more NRA-friendly. Politics aside, it’s safe to say firearms makers are comfortable in the United States.

As fellow Fool Rich Smith recently reported, the industry as a whole is pegged to grow at 13% annually for the next five years. Smith & Wesson Holding Corporation (NASDAQ:SWHC) is projected to roughly double that number over as much time. Perhaps, though, the market is somewhat unconvinced, as the stock sank fast last week when management failed to provide upbeat guidance for the remainder of the year. Despite this past quarter’s stellar performance, the company decided to stick by its aim of $1.30 to $1.35 per share for the full-year 2013.