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Are You Feeling Lucky, Punk? Then Sell Naked Puts On Smith & Wesson

Jun. 10, 2020 10:04 PM ETSmith & Wesson Brands, Inc. (SWBI)10 Comments


  • Gun ownership is a constant in the US. There is always a market.
  • While that market may fluctuate in demand, legendary names like Smith & Wesson will always fall into value territory at some point.
  • Smith & Wesson is cheap right now.
  • That creates opportunity to pick up shares on the cheap and collect income selling naked puts.


Can there be too many guns in America? Not according to gun owners. Setting aside the politics surrounding guns, the simple fact remains that there are more guns than people in the country.

The 2018 Small Arms Survey reported that there are 393 million guns in America. Oh yeah, guns are so popular that they also exceed the number of registered vehicles... by over 100 million! Just how many people own guns? Roughly 30%, according to Pew Research. Two-thirds own a gun for protection, and that point has been driven home by owners, who point to the recent riots as justification. Even as generations grow old and pass on and are replaced by new ones, gun ownership appears to be something passed down, because for the previous half-century, ownership only fluctuated between 37% and 45%.

That helps explain the NRA’s tally of near 6.6 million guns manufactured or imported every year. Riots and the pandemic have only stoked ownership, with all the major manufacturers reporting increased sales. Lake Street Capital Markets* said the following about manufacturer Sturm, Ruger & Company (RGR) on June 2:

“May demand for firearms exceeded our expectations significantly. Historically speaking, this level of demand is unprecedented and has continued longer than we expected. With the outbreak of civil unrest very late in May, we think the high demand is likely to continue into June. Although it is hard to weigh the drivers in demand, we think there is still some unfilled demand from COVID, recent buying due to civil unrest and continued and perhaps heightened buying due to the upcoming election and potential for increased regulation following the election."*

FBI firearm background checks have also grown significantly over the past twenty years. In other words, firearms manufacturing and sales is a good business. Not only is there a

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Comments (10)

OverTheHorizon profile picture
Agree— this could make my day. .. or send me off like Gran Torino.
> there are more guns than people in the country.

A meaningless comment. There are also more shoes, more knives, possibly more hammers. A "gun" is not a fungible product. Who would hunt quail with a .38 snub nose? Is a .410 shotgun adequate medicine for a bear attack? Anyone who owns one firearm is likely to acquire another - or others - of a different type.

As far as SWBI being a bargain or not, it IS one of the few stocks that didn't drop 5 - 15% today. Given its 4%+ gain today ~someone~ seems to think there is profit potential there. Nevertheless, with a PE of 27, I suspect that it may be at least 30% overvalued. That depends on what earnings look like and if they are sustainable.

I prefer to invest in (heavy) metals.
DividendGems profile picture

Next week earnings should show a big revenue and profit jump, which should be sustainable at least through the election, although the latest analysis has Dems taking the WH and Senate, which means the rally will continue as gun control legislation is a near certainty.
johnfairplay profile picture
Good article. Should the "Defund the Police!" movement be successful, firearm and home security stocks are going to skyrocket.
It’s not cheap. Only a buy between $8-12. I have been in this stock for 4 years at $24 with no yield. It only spikes near election cycles under fear of gun control and lib leadership. Looking back should have gone with Ruger over AOBC
DividendGems profile picture

More than just the election is driving sales. Earnings next week should be huge.
The Auryn profile picture
@RedFalcon Question I have is I've heard that because SWBI doesn't sell the guns themselves, it sometimes has a lag of a quarter for the sales to show up on their earnings report?
DividendGems profile picture
True. They also have an unusual calendar. The results reported next week will be for the quarter ending April 30. Considering that virus gun sales started to spike in March, I assume SWBI also saw orders increase around that time and continuing in April. Perhaps only half of last qrtr will reflect higher revenue. Forecasts for the current qrtr (May-July) should be even higher.
Interesting. Not long ago AOBC began trading weekly options - but I sold out to invest in a competitor. Haven't looked at the SWBI valuation or option chains this quarter. The recent run UP in price makes me look away. The recent business change creates some uncertainty as well. In addition, these products have staying power. I prefer something that needs to be re-manufactured and repurchased. Thanks for the article- YOU may be on to something.
Brandon Young profile picture
“Historically, the average P/OCF over the past ten years has been about 9. Right now, it sits at about 8.3, making it a comparative value.”

Do you think that discount to the long term average now is warranted since many of the risks you mentioned are relatively recent developments? For instance, increasingly more financial firms have voluntarily made the decision to limit or altogether move out of lending to firearms manufacturers. In the wake of the 2018 Remington bankruptcy this seems like an important risk to consider.
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