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Smith & Wesson Holding Corporation Message Board

  • equity_360 equity_360 Jul 31, 2013 9:27 PM Flag

    TIME FOR A TUNE - UP: RELATIVE VALUATIONS, RGR vs SWHC

    Using ttm numers from YAHOO, I am calculating the multiples awarded to RUGER and applying them to SWHC. Keep in ming, SWHCs EBITDA number on a normalized basis is quite higher, and I am not about to wreck a buzz by going through that.

    RGR:
    Price sales ratio 1.78x
    Market cap to EBITDA mult is 7.07x

    SMITH:
    PRice sales ratio is 1.26x
    Market cap to EBITDA Mult is 5.08

    So, due to a number of issues, most of them management (BOARD) related, SWHC doesn't get its full due. If all things were normal,

    SMITHS pps based on price sales would be 1.78/1.26 * $12 = $16.95
    SMITHS pps based on MCAP/EBITDA would be 7.07/5.08 * $12 = $16.70

    Now add in a short squeeze and an ongoing buyback, and SMITH could go to $20 (easy).

    ONE SHOULD NOTE that SMITHs margins are actually much better than RGR on a normalized basis, so the price sales factor could get nudged up and SWHC could get a better PPS as a dollar of sales is worth more at SWHC than at RGR.

    ALSO note, the buyback is not over. Or better said, they might not have to spend the cash. SO their net debt and cash pile will be more favorable than RGR - as ruger pays out 40% dividends. This buyback is ????

    Sentiment: Strong Buy

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    • SWHC is a fine company, but it is valued almost exactly the same as Ruger, if you consider growth rates, and margins.

      I estimate RGR trades for a P/E ratio=11.2x trailing earnings, while SWHC is at 10.6x trailing earnings.
      In the most recent quarter, RGR's revenues were $179.5 million, and SWHC revenues were $178.7 million, nearly identical. But Ruger's income was $32.3 million, versus SWHC $25.166 million, which means higher margins.

      Finally, if you look at revenues for SWHC FY 2012 first quarter, they were $91.4 million. The corresponding quarter for Ruger had revenues of $80.5 million. Now, revenues are equat. So Ruger is growing slightly faster versus SWHC, at least over the last 2 years. But not by much.

      Both are fine companies, trading at low P/E ratios and exhibiting white-hot revenue growth.

    • Seeking alpha has an investor who does an in depth analysis of SWHC wherein he addresses all the arguments of the shorts and projects a stock price of $22-24. I would be happy with $21!

      • 1 Reply to dontbetheball
      • The seeking alpha article is one of the best written. I like the authors approach to breaking down elements of demand. It shows a good handle on the revenue growth.

        While $20 is not far off, I differ in the range. I think the range is $17-20 as there will always be a shadow of doubt hanging over the stock driven by opportunistic shorts, news events (mass shooting hysteria), and legislation. I would argue it gets above $20 only in a take-private transaction. All that said, demand has been remarkable, and i do not see the demand question as 'fully understood'. It could go higher with continued unrest and violence in this country
        Its not all about target shooting.

    • The above analysis is "what the company is worth". It put the two companies on an equal footing without regard to divvys. if any one has another comp to use let me know. Looking for a US BASED tool company. Tough to find these days. . Especially a pure play.

    • Bump

    • But Ruger pays a div. and makes better guns.

 
SWHC
9.91-0.18(-1.78%)Dec 26 4:00 PMEST

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