What Happened?
Shares of american firearms manufacturer Smith & Wesson (NASDAQ: SWBI) fell 13.1% in the morning session after the company reported weak third-quarter results as revenue missed expectations, declining nearly 16% year on year, while earnings came in roughly in line. Operating margins also deteriorated, reflecting weaker sales and cost pressures. Additionally, the company burned cash during the quarter, with free cash flow turning negative.
Looking ahead, management expected full-year revenue to decline by 5% to 10% compared to the prior year, reinforcing concerns about ongoing softness in consumer demand. While new product categories continued to gain traction, overall market conditions remained challenging. Overall, this was a weaker quarter, with revenue declines, margin pressure, and negative cash flow weighing on results.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Smith & Wesson? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Smith & Wesson’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. Moves this big are rare for Smith & Wesson and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 12 months ago when the stock gained 29.6% on the news that the company reported strong fourth-quarter results that blew past analysts' operating margin and EPS expectations. Its revenue also outperformed Wall Street's estimates. Management noted it "gained market share as our shipments outpaced the overall firearm market" and that it "expects the firearm market to experience healthy demand through the 2024 election cycle".
For context, firearm sales typically rise in each election year as consumers fear potential policy changes and stockpile goods. Smith & Wesson's Board also authorized a $0.12 per share quarterly dividend. Zooming out, this was a fantastic quarter that should have shareholders cheering.
Smith & Wesson is down 0.4% since the beginning of the year, and at $9.94 per share, it is trading 44.9% below its 52-week high of $18.04 from March 2024. Investors who bought $1,000 worth of Smith & Wesson’s shares 5 years ago would now be looking at an investment worth $1,576.
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