Smith & Wesson Powers Up Heading Into Holiday Sales - Further Upside Ahead

With increasingly strong calls for gun control legislation by President Obama and other politicians, it is likely that Smith & Wesson (NYSE: SWHC) will see increased earnings that continue over the next few months. Each time politicians call for more gun control, the public tends to purchase guns en masse due to fears they will be potentially prevented from doing so if they wait.

Following the President's speech about gun control on Dec. 6 resulted in gun stocks surging on Monday, with Smith & Wesson's stock raising by more than $1 per share up to $20.44.

(Click on image to enlarge)

This is compounded by the fact the Supreme Court of the United States decided not to hear an appeal of a city gun control law in a suit filed by gun-rights advocates.

Strong Q2 Earnings Report

Smith & Wesson reported their second-quarter earnings after the close of business on Dec. 8. Analysts predicted that the company would report earnings of 20 cents per share and see sales increase to $185.39 million.

Results exceeded expectations. The firm now expects adjusted earnings to come in between $1.26 a share and $1.31 a share (up from its previous range of $1.14 to $1.19).

SWHC posted revenue of 32.1% to $143.2 million and a profit of $12.5 million, or 22 cents a share.

Impact of Recent Terror Incidents

There is also a strong correlation between incidents of gun violence and resulting increases in gun sales. With the attack in Paris, the Planned Parenthood shooting in Colorado and the San Bernadino, Calif., massacre, gun sales should be expected to spike. While holiday sales overall are not expected to be strong, due to people being worried about the stock market fluctuating due to the terror incidents, that is not true for gun manufacturers, like Smith & Wesson. Instead, the company is seeing sales that are very brisk, which should be expected to continue.

Additional Recent Results and Competition

While Smith & Wesson's stock values jumped by 8.1 percent on Monday, Dec. 7, shares of Sturm, Ruger & Co. (NYSE: RGR) also rose, similarly benefiting from fears over gun control legislation. Ruger's stock increased by 5.9 percent on the day. Over the past month, Ruger's stock value has increased by 13.3 percent. Still, Smith & Wesson has outperformed Ruger and appears likely to continue doing so.

(Click on image to enlarge)

Recommendation: SWHC Buying Opportunity

The constellation of factors make Smith & Wesson a current buy. With sales strength expected to continue for months, the share value is likely to also continue to increase. Calls for gun control should be expected to continue throughout the presidential election season, so investors might expect gun stocks to also only continue to rise. Similarly, with the holiday season's arrival, increased gun sales should also be expected. Smith & Wesson continues to be a stronger performer among its peers. We recommend investors buy Smith & Wesson stock and hold onto shares they already own at this time.