7 Most Undervalued Defense Stocks To Buy According To Analysts

02. Smith & Wesson Brands, Inc. (NASDAQ:SWBI)

Upside Potential: 43.50%

Forward Price to Earnings (P/E) Ratio: 10.2 

Number of Hedge Fund Holders: 17

Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is a key player in the global firearms industry, designing, manufacturing, and selling a diverse range of firearms, including handguns, long guns, and firearm-related products. Established in 1852 and headquartered in Springfield, Massachusetts, the company has built a strong reputation for quality and reliability, appealing to various customer segments, including firearm enthusiasts, collectors, and law enforcement agencies. Given its robust product portfolio and strategic market positioning, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) deserves a spot on any list of undervalued defense stocks.

In the recent Q1 fiscal 2025 earnings call, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) reported net sales of $88.3 million, marking a 22.7% decline from the previous year. This reduction was primarily attributed to weaker firearms demand and broader inflationary pressures affecting consumer discretionary spending. However, despite these challenges, the company demonstrated its resilience by maintaining a gross margin of 27.4%, a slight improvement from the prior year, aided by higher fixed cost absorption and effective cost management. Moreover, the firm’s disciplined approach allowed it to deliver nearly $10 million in EBITDAS during the quarter, further highlighting its operational strength.

Looking ahead, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is optimistic about a rebound in demand, particularly as the typically busy fall season approaches. The introduction of new products, such as the highly anticipated Bodyguard 2.0 and continued success with the 1854 lever action rifle, reflects the company’s commitment to innovation and market responsiveness. Notably, over 41% of first-quarter sales came from new product introductions, signaling strong consumer interest and brand loyalty.

Financially, the company has proactively managed its balance sheet, accelerating share repurchases with nearly $13 million spent in Q1 alone and authorizing a new $50 million buyback program. This commitment to returning capital to shareholders, combined with expectations for top and bottom line growth in the coming quarters, positions Smith & Wesson Brands, Inc. (NASDAQ:SWBI) as a compelling investment in the defense sector. Overall, despite current challenges, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) strong fundamentals, strategic innovations, and sound capital allocation suggest significant long-term growth potential, making it an attractive choice for investors looking at undervalued defense stocks.