Stock Analysis & Ideas

Smith & Wesson Stock is Attractive — A Controversial but Necessary Discussion

Story Highlights

Although Smith & Wesson Brands immediately triggers a gut reaction among investors, the toxicity surrounding SWBI stock might not challenge its upward viability. When viewed without an emotional bias, SWBI stock has positive growth catalysts that make the stock attractive.

Few other publicly-traded securities raise as much controversy and alarm as firearms manufacturer Smith & Wesson Brands (SWBI). Amid a surge of gun-related violence in the U.S., it’s only natural that investors are pensive about SWBI stock. Nevertheless, the facts imply that this company may have an upside narrative. I am bullish on Smith & Wesson.

Admittedly, any discussion on SWBI stock, or its sector counterpart Sturm Ruger & Company (RGR), is bound to generate uproar among many social circles.

Indeed, the wanton bloodshed from firearms-related crimes this year, ranging from the bigotry-motivated Buffalo, New York shooting to the Robb Elementary School massacre in Uvalde, Texas, among many others, has millions of people on edge.

Still, the issue of firearms and sector-related investments are among the most complex in American society. On a very basic level, the founding of the U.S. involved colonists taking up arms against the British Empire.

In more modern times, the segment employs hundreds of thousands of people, from direct engagement to downwind workers throughout the resource supply chain.

Sure, it might seem politically expedient to scapegoat SWBI stock and similar entities on paper. However, any punitive laws that force hardworking Americans into the unemployment line would constitute bad PR amid an extremely contentious political environment. Therefore, it’s unlikely that Smith & Wesson would suffer severe ideologically motivated challenges.

Moreover, fundamental trends are actually incredibly supportive of the firearms industry, encouraging an objective view of the controversial industry.

Smith & Wesson’s Smart Score Rating

On TipRanks, SWBI has a 4 out of 10 on the Smart Score rating. This indicates moderate potential for the stock to perform roughly in line with the broader market.

SWBI Stock and the Education Factor

Although the immediate knee-jerk reaction against gun manufacturers is to call for their cessation, the harsh reality is that eliminating the sector won’t address the root of the crime problem.

For one thing, there are already more guns than people in the U.S. Second, education (or lack thereof) may be one of the biggest catalysts for the violence dilemma.

According to economists Brian Bell, Rui Costa, and Stephen Machin, education lowers criminality. “To demonstrate that this is causal and not just because people with higher education have other characteristics that make them less criminally-minded, researchers have examined changes made in compulsory school leaving (CSL) laws that force some people to stay in school longer than they would choose voluntarily. These laws are then shown to simultaneously boost education and reduce crime.”

Interestingly, the U.S. Bureau of Economic Analysis notes that the “contributions to percent change in real government consumption expenditures and gross investment” metric for education has generally been declining since hitting a peak in 1966 (1.89%). In 2020, this metric was at 0.01%.

Even back in 2011, reputable sources such as The Washington Post noted that declining standardized test scores posed concerns about the viability of American academic infrastructures.

With the trend of declining test scores continuing throughout the post-COVID-19 era, by logical deduction, educational erosion appears to be a far bigger catalyst to gun violence than merely the existence of guns.

Pent-Up Demand Waiting in the Wings

Glancing at Smith & Wesson’s financials, the results for its quarter ending April 30, 2022, don’t seem encouraging. The firearms manufacturer posted revenue of $181.3 million, down almost 44% from the year-ago level. In any other circumstance, such an implosion of demand would spell catastrophe.

However, what prospective investors must realize is that 2020 and 2021 represented all-time highs in firearm sales. Therefore, 2022 quarterly results were always destined to be lower than prior-year comparisons.

What gets lost in the noise is that should Smith & Wesson’s fiscal Q1 sales be annualized, the end result would compare very favorably to pre-COVID-19 sales.

Further, another factor that potential investors of SWBI stock must consider is social catalysts. According to The Wall Street Journal, many police departments are struggling to replace officers who are quitting amid rising crime rates and greater public scrutiny of law enforcement.

Stated differently, American households will find that they are increasingly responsible for their own protection. Just like the fear of social degradation and racist scapegoating sparked a boon in firearm sales during the initial wave of COVID-19, new societal paradigms may likewise boost demand for guns.

Therefore, as unpalatable as firearms may seem, SWBI stock might make for a lucrative, long-term investment.

Wall Street’s Take on SWBI Stock

Turning to Wall Street, SWBI stock comes in as a Moderate Buy based on just one Buy assigned in the past three months. Smith & Wesson’s price target is $26, implying 95.8% upside potential.

The Takeaway – SWBI Stock is Unseemly but Enticing

No one should be under any misconception: no matter what the facts say, many people find firearms and investment assets like SWBI stock to be irredeemably immoral. Certainly, loading up the boat with shares of Smith & Wesson isn’t exactly dinner table talk.

At the same time, investors must approach the market with facts and without emotional bias. Under this context, SWBI stock is surprisingly relevant.


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