We came across a bullish thesis on Smith & Wesson Brands, Inc. (SWBI) on Twitter by northeasternsvf. In this article, we will summarize the bulls’ thesis on SWBI. Smith & Wesson Brands, Inc. (SWBI)’s share was trading at $11.16 as of Feb 20th. SWBI’s trailing P/E was 13.79 according to Yahoo Finance.
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Smith & Wesson (SWBI) presents a compelling investment opportunity, offering a high-quality, durable business with a projected 16.3% IRR through fiscal 2027. The company, a leading manufacturer of firearms and related accessories, generates the majority of its revenue from handguns (72%), followed by long guns (20%) and other products (8%). The firearms market exhibits unique demand drivers, including self-reinforcing, fear-based consumer behavior and an entrenched base of firearm owners, with 50% owning three or more firearms. This creates a resilient revenue stream that benefits from recurring demand patterns. Smith & Wesson’s capital allocation strategy is shareholder-friendly, prioritizing organic reinvestment, debt repayment, dividends, and buybacks, reinforcing its long-term value proposition. The company’s flexible manufacturing model allows it to quickly respond to demand surges, positioning it well to capture market share and drive shareholder returns.
Recent price-implied expectations for Smith & Wesson have been deflated due to negative earnings reactions in Q1 (-15%) and Q2 (-30%), along with sharply lowered guidance. However, an alternative data model incorporating search activity, supply chain indicators, and seasonal trends suggests management may be sandbagging expectations, pointing to an 11.5% revenue beat for Q3 FY25. This potential outperformance could serve as a near-term catalyst for the stock. Additionally, the launch of the 1854 lever-action rifle is expected to drive a significant increase in long gun revenue, with demand validation from both manual and automated retailer checks across major firearm distributors. The strong reception of this product suggests a 126% increase in 1854 unit volume and 8-15% overall growth in long gun sales, improving Smith & Wesson’s product mix and boosting average selling prices.
Beyond demand catalysts, improving supply chain dynamics are set to enhance profitability. Years of discounting and destocking have pressured margins and elevated inventory levels, but recent data from Sportsman’s Warehouse and distributor inventory commentary signal an inflection point. This should translate into a gross margin uplift beyond 30% and a $30 million inventory unwind through fiscal 2026, further strengthening the company’s financial position. While regulatory risks remain an inherent concern in the firearms industry, the current political landscape, including a conservative-leaning Supreme Court, mitigates near-term legislative threats. Additionally, while the firearms industry is cyclical, Smith & Wesson’s flexible manufacturing model acts as a stabilizing factor during downturns, ensuring a baseline level of profitability. The company has also demonstrated pricing power in the face of supply chain challenges, further underscoring its competitive advantage.
Overall, Smith & Wesson is well-positioned for both near-term and long-term growth. The combination of improving revenue trends, favorable product mix shifts, and margin expansion creates a strong investment case, with the potential for significant upside as the market reassesses the company’s earnings trajectory.
Smith & Wesson Brands, Inc. (SWBI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held SWBI at the end of the third quarter which was 15 in the previous quarter. While we acknowledge the risk and potential of SWBI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SWBI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.