Time To Bite The Bullet And Buy Smith And Wesson

Sep. 7.12 | About: Smith & (SWHC)

Shares of gun maker Smith & Wesson (NASDAQ:SWHC) rocketed to new five year highs in after hours trading Thursday. The company reported earnings and revenue numbers that beat company guidance and that of analysts. Smith & Wesson also raised its full year guidance and showcased its strong backlog. All of these events triggered a 23% increase in the share price from the open of the market until the end of after hours trading.

Gun stocks have been hot all year, and shares of Smith & Wesson are up 140% now since the beginning of 2012. Back in June, I recommended to "Stock up on Smith & Wesson shares as Americans stock up on guns". The same buying point is strong today as the election and recent public shootings have people on their toes and buying more guns.

In the first quarter, Smith & Wesson saw record net sales of $136.0 million. The sales were up 48.3% from last year's first quarter. Gross profit increased to $51.3 million, representing 37.7% of sales. Last year, the company's gross profit margin was only 28.9%. Net income was also a record and was reported as $18.9 million. The company saw earnings per share of $0.28 in the quarter, compared to $0.04 last year.

The company's backlog remains one of the biggest reasons to stay bullish on this company. The company's backlog increased 164% to $392.4 million. In my last piece, the company had just saw its backlog increase by 135%. These large increases represent more orders being placed by consumers and sporting good stores. The strong future orders lead to the company raising guidance and blowing past analysts' estimates.

In the second quarter, net sales are expected to be $130.0-$135.0 million, with earnings per share coming in at $0.19 to $0.21. For the full year, Smith & Wesson is calling for $530.0 to $540.0 million in net sales, representing 30% growth from last year. Earnings per share are expected to be $0.85-$0.90 for the full year now. Analysts on Yahoo Finance are calling for $0.18 in earnings per share for the second quarter from $128.7 million in sales. Analysts see the company posting sales of $498.24 million for the fiscal year. Earnings per share are predicted to be $0.63.

In my last piece on Smith & Wesson, I recommended buying shares of the company under $8. At the time, shares were under $7 and have now increased close to 50% since the time of that article. At that time the company had only forecasted earnings per share for this fiscal year to be $0.50. Today's new guidance has almost doubled that previous target.

Despite the run-up in Smith & Wesson's share price, I am still bullish on the company. Back in June, I said the company had "not finished rallying". I think the same can be said for today. The November election could see another swing in gun maker's stock prices. There might not be a pullback between now and January, but if there is be ready to pounce.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.