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Gun Control Talk Spurs Gun Sales: Does It Last?

Smith & Wesson (SWHC) shares rose surged about 8% on Friday as the company reminded us once again how lucrative the gun control debate can be for gun manufacturers. But before joining the rally, take a look at a stock chart and how such surges on regulation fear have played out for Smith & Wesson shareholders in the past.

SWHC Chart

SWHC data by YCharts

The rise followed Smith & Wesson’s announcement late Thursday that its preliminary sales and earnings numbers for the fourth quarter were well above consensus estimates. It also announced a $100 million share repurchase plan.

That profit notice is similar to several others it issued last year as the gun control debate heated up. Threats to the availability of guns and ammunition, like the enhanced background checks Congress has been toying with, always make sales of guns and ammunition climb. That was a big reason Smith & Wesson’s revenue growth soared in the months after President Obama and his gun-regulating sentiments were elected in 2008.

SWHC Revenue Quarterly YoY Growth Chart

SWHC Revenue Quarterly YoY Growth data by YCharts

But you’ll notice that Smith & Wesson didn’t maintain that sales volume for long. In fact, its sales for the 12 months trailing January 2011 were about 11% lower than for the 12 months ended January 2010. A big part of the gains shareholders had won during that period evaporated too. In other words, there were some lasting gains for both revenue and share price, but they weren’t nearly as big as the original reaction suggested they might be.

SWHC Chart

SWHC data by YCharts

SW shares were up 45% on the year even before Thursday’s news. But it seemed investors had already grown a little bored with the gains-on-gun control play. Share prices for Smith & Wesson, as well as competitor Sturm Ruger & Co. (RGR) were at about the same place on Thursday as they were six months ago. And, based on PE ratio, the stocks are hardly well-loved. An industry that moves less on investment analysis, and more on what politicians are saying about guns, is a tough long-term play.

SWHC PE Ratio TTM Chart

SWHC PE Ratio TTM data by YCharts

Looks like it will take something more than fear among gun owners to make investors in Smith & Wesson happy long term.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. You can also request a demonstration of YCharts Platinum.

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