Why Smith & Wesson Stock ticked today
After first flight, so finally back off in weekend trading last week, shares of Smith & Wesson brands (NASDAQ: SWBI) rebound on Monday. After rising nearly 10% earlier in the session, they fell back, but were still up 4.3% as of 1:30 p.m. EST.
There does not appear to be any particular catalyst behind Monday’s rise. Nevertheless, the actions of the sector – Sturm Ruger, Vista Exterior, and Ammunition Inc. – were also all modestly on the rise. One possible reason is that investors have reassessed the chances of new gun laws being passed by a Democrat-controlled Congress and White House, and believe it is not as great as it seemed at first glance.
Or investors may think that the chances of stricter gun laws being passed are as great as they appear … and that the perceived risk of doing so will increase gun sales in the near term.
Historically, this is how things have worked in Washington. Proposals to ban assault weapons, tighter regulations on who can buy guns, and similar legislative efforts have consistently scared gun enthusiasts into buying more guns “as long as they go. ‘they still can’, increasing sales. Even if the promised legislation is not passed, the revenues remain.
The bigger question for investors is what will happen after this momentum plays out? What does the Smith & Wesson share look like over the long term?
Well, right now Smith & Wesson is actually storing looks very attractive with $ 245 million in free cash flow and a market cap of just about $ 1.1 billion, a price to free cash flow ratio of about 4.5. With no net debt on its books and analysts predicting 15% annualized earnings growth over the next five years, the arms maker could actually prove to be a smart game in the short term… and long term as well.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.