Springfield, Mass.-based firearm products manufacturer Smith & Wesson Brands, Inc. (SWBI) witnessed robust demand for its products earlier this year, due in varying degrees to  COVID-19 pandemic-induced high demand, a change in the U.S. presidency, and civil unrest. 

According to National Shooting Sports Foundation data, more than 3.2 million people purchased a firearm for the first time during the first half of 2021. Also, SWBI is expected to pay a $0.08 per share quarterly dividend on January 3, 2022.

However, the stock has lost 17.2% in price over the past month to close yesterday’s trading session at $17.85. Furthermore, its shares plunged 29.9% on December 3, putting it on track for its biggest one-day selloff since March 2020. This is due primarily to its weaker-than-expected second-quarter earnings and a decline in demand levels from the pandemic-related highs. Also, in May, SWBI also announced its plans to divest its Thompson/Center Arms brand. So, the stock’s near-term prospects look uncertain.

Here is what could influence SWBI’s performance in the upcoming months:

New Product Launches

On November 23, SWBI introduced its  newly enhanced M&P9 M2.0 compact and  full-sized M&P M2.0, the latest expansion in its M&P M2.0 line of handguns. Also last month, it launched the M&P10mm M2.0 pistol. And it released 2,100 limited edition M&P15T II engraved rifles on November 9 to celebrate the proposed move from its long-time headquarters in Massachusetts to Tennessee.

Unimpressive Financials

SWBI’s gross profit increased 0.9% year-over-year to $102 million for its  fiscal second quarter, ended October 31, 2021. However, the company’s net sales decreased 7.3% year-over-year to $230.48 million. Its handguns shipped decreased 15.8% year-over-year to 383,000 units, while long guns shipped came in at 109,000 units, down 36.3% year-over-year. Moreover, its net income declined 2.5% year-over-year to $50.94 million.

Unfavorable Analyst Estimates

Analysts expect SWBI’s revenue to decrease 31.3% year-over-year to $221.87 million for the quarter ending April 30, 2022. Its revenue is further expected to decline 13.1% this year and 18.7% next year. In addition, its EPS is expected to decline 31.3% for the current quarter, ending January 31, 2022, and 36.1% in fiscal 2023. And  Cowen Inc. (COWN) analyst Cai Von Rumohr recently downgraded the stock’s rating to ‘Market Perform’ from ‘Outperform.’

POWR Ratings Do not Indicate Enough Upside

SWBI has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. SWBI has a C grade for Momentum, which is in sync with its 17.2% loss over the past month and 15.4% decline over the past three months.

The stock has an F grade for Growth and Sentiment, consistent with unfavorable analyst sentiment.

SWBI is ranked #23 of 38 stocks in the Athletics & Recreation industry. Beyond what I have stated above, we have also given the stock grades for Stability, Value, and Quality. Get all SWBI’s ratings here.

Bottom Line

SWBI has introduced several new products over the past few months. However, the stock is currently trading below its 50-day and 200-day moving averages of $21.65 and $21.68, respectively, indicating a downtrend. Analysts expect its revenue and EPS to decline in the near term. So, we think it could be wise to wait for a better entry point in the stock.

How Does Smith & Wesson Brands (SWBI) Stack Up Against its Peers?

While SWBI has an overall POWR Rating of C, one  could check out the following stocks within the Athletics & Recreation industry having an A (Strong Buy) or B (Buy) ratings: Johnson Outdoors Inc. (JOUT), Columbia Sportswear Company (COLM), and Vista Outdoor Inc. (VSTO).

Note that COLM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

SWBI shares rose $0.05 (+0.28%) in premarket trading Thursday. Year-to-date, SWBI has gained 1.76%, versus a 26.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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