What Happened?

Shares of american firearms manufacturer Smith & Wesson (NASDAQ: SWBI) fell 20.5% in the afternoon session after the company reported disappointing third quarter results. Its revenue, EPS, and EBITDA fell short of Wall Street's estimates. Management attributed the shortfall to a normalization in firearm demand, largely driven by inflationary pressures. They also observed heightened consumer caution around discretionary spending, which was more pronounced in the second quarter than previously anticipated. Given the soft demand trends, the company lowered its sales outlook for the next quarter and the second half of the fiscal year. Overall, this quarter could have been better.

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 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 biggest move we wrote about over the last year was 9 months ago when the stock gained 29.6% on the news that the company reported 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 17% since the beginning of the year, and at $11.16 per share, it is trading 38.1% 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 $1,213.

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