Smith & Wesson Scores Another Perfect Round

TheStreet.com

NEW YORK (TheStreet) -- Smith & Wesson reported bull's eye earnings on Tuesday. From an investor point of view, it's hard to ask much more of the management team that has effectively turned the Springfield Company into a money printing press.

The fourth quarter ending April 30 resulted in doubling net income to $25.2 million from a year earlier. Smith & Wesson hit the target with a record $178.7 million in revenue. Amazingly, the profits would have been greater if the company could keep up with incoming orders. Smith & Wesson salespeople may have the best job in the world right now.

Demand for product isn't waning, and production capacity is the only bottleneck based on comments made during the earnings conference call.

CEO, President James Debney stated:

"...gains over the year were driven by strong consumer demand for our products, which we believe is due to heightened awareness paired with our ability to significantly increase our manufacturing capacity. Full year sales growth of nearly 43% was driven in large part by our increased M&P production. Demand remains strong across our product portfolio...
"While we significantly increased our production capacity in fiscal 2013, we remained capacity constrained as we have in the past five quarters. We plan to continue intelligently increasing capacity in fiscal 2014.
"...Sales for the quarter rose 37.6% year-over-year. Gross margins in the high 30s continue to expand ..."

While it's true I own Smith & Wesson and Sturm, Ruger firearms, it's a mistake to believe I'm bullish either stock as a result. In my article Canon Continues to Lose Focus I go into detail of why I don't use personal preferences in my stock buying decision process.

With that said, I am highly bullish and have owned shares in Smith & Wesson from time to time and/or sold put options for a synthetic bullish position. If this company didn't manufacture firearms and sporting related products, I believe the stock would be more than triple the current price. Wall Street isn't the biggest Second Amendment fan, and their reluctance is your window of opportunity.

Institutions liquidated almost 90% of their holdings in the wake of the shootings that brought the media's attention towards firearms. More than 16 million shares changed hands from institutional to retail investors. It's no wonder most money managers can't beat the market average when they allow personal biases influence their capital allocation decisions.

The only negative I can find is that they don't pay a dividend. Sturm Ruger distributes more than a 4% yield to shareholders. Between the two main firearm choices, I prefer a fat quarterly dividend over zero dividends, but if dividends are not a priority for you, Smith & Wesson is trading at a smaller earnings multiple and may offer a better investment value.

Smith & Wesson did say it plans on buying back shares, and as the company adds capacity, investors can anticipate top and bottom line growth to continue. For long term investors without negative personal feelings towards the industry or investors strictly focused on the investment thesis, it's nearly impossible to find a company that can sell more than they can produce AND the stock is trading at a discount.

Use every dip in price as a buying opportunity. The stock is politically discounted for zero growth while sales quickly expand. It's the perfect heads you win, tails you breakeven investment we all search for.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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