Shares of Smith & Wesson Brands (NASDAQ: SWBI) saw a significant increase in after-market trading as the company reported its quarterly earnings. Despite some disappointing figures, investors are still enthusiastic about the stock due to the CEO’s positive outlook and insider buying. Analysts believe there is a double-digit upside potential for the stock, making it an attractive opportunity for investors.
Key Points
1. Despite disappointing financial figures, Smith & Wesson’s stock is experiencing a pop in after-market trading, indicating excitement among investors. The CEO believes that the worst is behind the company’s financials, and analysts see a double-digit upside potential in the stock.
2. Insiders have been buying cheap shares of Smith & Wesson, and other fundamental valuation metrics also suggest that the stock is relatively inexpensive. This presents an opportunity for investors to buy as well.
3. While the company has faced challenges, such as declining net sales and gross margins, management has taken steps to address these issues, including retiring shares and reducing elevated channel inventory. With these headwinds seemingly abating, the business may see improvements in gross and net margins.
Shares of Smith & Wesson Brands (NASDAQ: SWBI) are seeing a surge in after-market trading as the company releases its quarterly earnings. Despite some disappointing figures, there are other factors that are exciting investors. Analysts believe there is still a double-digit upside potential for the stock, and the CEO has expressed confidence that the worst is over for the company’s financials. Insiders have been buying cheap shares, and other fundamental valuation metrics suggest that the stock is still relatively inexpensive. Overall, this presents an opportunity for investors to consider buying into the stock.
In the after-market hours on Thursday evening, Smith & Wesson’s shares are up by as much as 6.6%. This sudden increase comes as the company reports its quarterly earnings. Despite some slowdowns, investors still view Smith & Wesson as a stable and reliable cash-flowing business that typically commands higher valuations during uncertain economic cycles. The stock has been on a decline since 2021, with a painful 77.2% decrease. However, when compared to competitors like Sturm Ruger & Company (NYSE: RGR), Smith & Wesson’s stock performance over the past year is similar.
Considering these factors, investors wonder if the stock’s after-market advance, despite slower financials, can be seen as a positive sign. Analyst ratings for Smith & Wesson suggest a consensus 13.4% upside potential from current prices, with a price target of $13.5 per share. On an annual basis, the company’s net sales have declined by 20.1% compared to the same period last year. Gross margins have also decreased, and net income has witnessed a significant contraction of 61.2%. However, earning per share has experienced a less severe decline of 35.5%. One positive indicator driving sentiment is the management’s retirement of two thousand shares from the open market, demonstrating insiders’ confidence in the stock.
Smith & Wesson operates in the defense niche but is also influenced by the dynamics of the retail industry. The retail sector has faced inventory challenges in recent years, and Smith & Wesson has been no exception. However, the CEO stated that elevated channel inventory throughout the first half of the fiscal year has abated, clearing the way for potential growth in gross and net margins.
In addition to insider confidence, other indicators suggest that the stock is poised for advancement. The price-to-earnings ratio for Sturm Ruger & Company is significantly higher at 12.8x compared to Smith & Wesson’s modest 8.6x. Despite this valuation gap, the two stocks have shown similar performance over the past year, indicating that Smith & Wesson has greater potential for a price advance. Furthermore, Smith & Wesson currently offers a 3.6% dividend yield, one of the highest since initiating dividends in 2020. This suggests that the stock price may need to rise to align with the yield or the dividend payout may need adjustment. Given the low P/E ratio, investors should not expect a dividend cut.
Overall, investors are urged to consider the potential of Smith & Wesson as a buy opportunity, especially in light of the positive dynamics surrounding the stock and its valuation relative to competitors.
