With likely little pushback, one can easily label Smith & Wesson Brands (SWBI) as one of the most controversial companies in the U.S. at the moment. If certain policymakers had their way, both SWBI stock and the underlying firearms industry would go the way of the rotary dial phone – an archaic piece of equipment only to appear in Hollywood films.
Unfortunately for gun control advocates, the firearm industry will probably not only survive but thrive. The harsh reality is that for many years now, there have been more guns than people in the U.S. That’s not to say that everybody in this nation owns firearms – clearly, that’s not the case. However, we can logically assume that those who do exercise the second amendment do so passionately.
In addition, another reason to keep SWBI stock on your radar is the industry’s economic value. As I mentioned recently, the firearms industry employs hundreds of thousands of people. We’re not just talking about the over 150,000 direct jobs but also the myriad opportunities offered by the sector’s entire value chain.
As adamant as certain lawmakers are regarding sensible controls on firearm access – a legitimate need in this country amid rising gun violence – the wholesale curbing of the second amendment will almost certainly never materialize. Destroying economic value would be a mandate that no authorizing politician could survive.
What’s more, fundamental and technical winds continue to blow favorably for SWBI stock.
Options Sentiment Rings Positively for SWBI Stock
Following the close of the June 23 session, Smith & Wesson represented a top highlight in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 8,269 contracts against an open interest reading of 21,985. Further, the delta between the Friday session volume and the trailing one-month average metric came out to 651.04%.
Drilling down, call volume hit 6,263 contracts against put volume of only 2,006. This pairing yielded a put/call volume ratio of 0.32, on paper favoring the bulls. Notably, Barchart also points out that the put/call open interest ratio is 0.67, likewise indicating optimism.
Undergirding the enthusiasm for SWBI stock was the underlying company’s disclosure of its fourth quarter of fiscal 2023 earnings reports. To be fair, the print itself left much to be desired. For example, net sales clocked in at $144.8 million, a decrease of $36.5 million (or 20.1%) from the year-ago quarter. Also, GAAP net income was $12.8 million, comparing unfavorably to the $36.1 million posted one year ago.
However, as Barchart content partner MarketBeat mentioned, an “exciting dynamic is developing” that could swing the needle favorably for SWBI stock. Namely, Smith & Wesson appears to be trading at a significant discount while its competitors appear well overvalued. As MarketBeat’s Gabriel Osorio-Mazilli stated, SWBI stock is a near mirror relative to Sturm Ruger (RGR).
It’s difficult not to recognize and appreciate the argument. Right now, the Barchart Technical Opinion indicator pegs RGR as a 72% strong sell. Interestingly, no analyst within the past three months has covered the firearms manufacturer.
On the other side, Barchart pegs SWBI stock as a 96% strong buy. Further, two analysts presently cover SWBI, with both rating shares as a strong buy. Further, their average price target lands at $15.17, meaning that even with June 23’s massive 20.20% gain, there’s still upside theoretically remaining. As well, the high price target is $20, which implies significant northbound expansion.
It’s All in the Print
With the dust from the Friday rally settling, SWBI stock still represents solid value. Currently, the market prices shares at a trailing multiple of 16.89. In sharp contrast, data from NYU Stern School of Business reveals that the price-earnings ratio (on a trailing-12-month basis) for the underlying aerospace/defense industry stands at 53.69 times. The sector’s current PE is 39.29 times.
No matter how you cut it – 39 times or nearly 54 times – SWBI stock still wins the favorable valuation battle.
Moreover, the price-to-book ratio of Smith & Wesson lands at 1.62 times. Here too, investors receive a discount. Per NYU, the book value of the aerospace/defense sector stands at 4.93 times. To confirm MarketBeat’s analysis, investors interested in this arena can get far better value with SWBI stock.
Finally, if shooting sport participation in the U.S. continues to trend as it has between 2006 and 2017, then Smith & Wesson should stand on favorable ground. Not only does it manufacture quality products, it enjoys brand notoriety that, while controversial to many outside observers may serve as a “bad boy” impetus for the firearms community.
As I stated earlier, that community features a massive footprint and wallets that open quite widely. If you’re politically and ideologically agnostic, you don’t want to ignore Smith & Wesson’s long-term upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
