What Happened?

Shares of american firearms manufacturer Smith & Wesson (NASDAQ: SWBI) jumped 17.5% in the morning session after the company's third-quarter results outpaced Wall Street's revenue and profit expectations. 

The positive reaction from investors came despite a 3.9% year-over-year decline in sales to $124.7 million. While the revenue beat was modest, the company showed significant strength in profitability. Its adjusted earnings per share of $0.04 was double what analysts had forecast. Furthermore, adjusted EBITDA of $15.14 million beat estimates by a wide 26% margin, and free cash flow showed a notable improvement, reaching $16.28 million compared to a negative $10.7 million in the same quarter last year. Ultimately, the market appeared to focus on the strong bottom-line performance and cash generation rather than the slight dip in revenue.

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What Is The Market Telling Us

Smith & Wesson’s shares are not very volatile and have only had 8 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 previous big move we wrote about was 14 days ago when the stock gained 4.3% on the news that comments from a key Federal Reserve official bolstered hopes for an interest rate cut. New York Federal Reserve President John Williams stated he sees “room for a further adjustment” in the near term, sparking a significant market rally. Following his remarks, the probability of the central bank cutting rates at its December meeting jumped from 39% to over 73%, according to the CME FedWatch tool. This positive sentiment provided relief to markets amid concerns over high valuations, particularly in AI-related stocks.

Smith & Wesson is up 5.4% since the beginning of the year, but at $10.52 per share, it is still trading 22.9% below its 52-week high of $13.63 from December 2024. Investors who bought $1,000 worth of Smith & Wesson’s shares 5 years ago would now be looking at an investment worth $678.83.

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