Is Smith & Wesson Holding Corporation (NASDAQ:SWHC) a buy following the stock’s drop today after the company announced disappointing guidance for the first quarter of its fiscal year 2016? Shares were down by 3.9% earlier this morning, but have begun to rebound and are now down by a little over 1% on the day. The weapons manufacturer actually reported strong quarterly results for the final quarter of its fiscal 2015 year, which ended on April 30, 2015. Smith & Wesson Holding Corporation reported a net income of $21.9 million, or $0.45 per diluted share, on revenues of $181 million. Analysts were expecting earnings of $0.35 per diluted share on revenues of $175 million. Today, RBC Capital Markets upgraded its rating on the company’s stock to ‘Outperform’, with an increased price target of $21 per share from previously being $16 per share. Analyst Steven Cahall cited confidence in the company’s performance in the latest reported quarter and a guidance for the current quarter that shows recovery for the topline. However, Smith & Wesson Holding Corp (NASDAQ:SWHC) also released lower-than-expected guidance between $0.21 to $0.23 earnings per share on revenues between $140 million and $145 million for it fiscal first quarter of 2016. Consensus expectation is at $0.28 earnings per share from revenues of over $147 million.
Nevertheless, it should be noted that according to the Insider Monkey database, hedge funds were crazy about Smith & Wesson Holding Corporation (NASDAQ:SWHC) in the first quarter of 2015. The firm was in 19 hedge funds’ portfolios at the end of March. Smith & Wesson Holding Corporation investors should be aware of an increase in hedge fund sentiment recently. There were just 11 hedge funds in our database with SWHC holdings at the end of the previous quarter.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
In the case of insider sentiment for Smith & Wesson (NASDAQ:SWHC), we see some insiders cashing in by selling shares. Jeffrey Buchanan, executive vice president, chief financial officer, and treasurer, sold 5,000 shares in May. Director Michael Golden sold 100,000 shares, also in May.
Taking all of these factors into consideration, we’ll examine recent hedge fund activity regarding Smith & Wesson Holding Corporation (NASDAQ:SWHC).
What have hedge funds been doing with Smith & Wesson Holding Corporation (NASDAQ:SWHC)?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long in this stock, a change of +73% from a quarter earlier.
Of the funds tracked by Insider Monkey, Chuck Royce’s Royce & Associates had the number one position in Smith & Wesson Holding Corporation (NASDAQ:SWHC), worth close to $18.9 million, accounting for 0.1% of its total 13F portfolio. The second-largest stake is held by Herring Creek Capital, managed by Steve Galbraith, which held a $15.1 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Remaining hedge funds that hold long positions include Steve Cohen’s Point72 Asset Management, Peter S. Park’s Park West Asset Management, and D.E. Shaw, founded by D.E Shaw.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the most valuable position in Smith & Wesson Holding Corporation (NASDAQ:SWHC). Millennium Management had $4 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $3.3 million position during the quarter. The other funds with brand new SWHC positions are Richard Driehaus’ Driehaus Capital, Josh Goldberg’s G2 Investment Partners Management, and Peter Muller’s PDT Partners.
Taking the very positive hedge fund sentiment into account and the opportunity created by today’s share price drop, we recommend buying Smith & Wesson Holding Corporation (NASDAQ:SWHC).
Disclosure: None
