Trading Gun Stocks Can Make You Rich

Readers who have been following my articles for a few months would know my changing stance on gun stocks. Last quarter, I had recommended investors to short Sturm, Ruger & Company (RGR), and Smith & Wesson Holding Corporation (SWHC) twice. Since my short call, both the stocks lost about 20% of their value in the next few weeks.

However, I recently changed my stance on both the stocks and recommended going long in anticipation of a stellar earnings report and misunderstood crash.
In that article, titled “Changing My Stance on Gun Stock”, I recommended investors to either buy both the stocks or buy call options with July expiry.

In the meantime, Smith & Wesson released its stellar quarterly results, leading to a 10% jump in the stock price. Sturm, Ruger & Company also staged a mini-rally in sympathy with its peer.

For the quarter, Smith & Wesson reported EPS of $0.66, beating the consensus by $0.12. Revenue for the quarter came in at $221 million, up 22% year over year, beating the analysts’ estimate by $6.55 million.

In addition, the company also issued strong guidance for the next quarter. For the current quarter, Smith & Wesson now sees EPS of $0.49-$0.53 as compared to consensus of $0.36. Revenues for the quarter are expected to come in the range of $190 million-$200 million, way ahead of the consensus of $161.5 million consensus. For FY 2017, the company sees EPS of $1.83-$1.93 as compared to $1.64 consensus.

In addition, the company also said its strong guidance does not factor in any rush to buy guns sparked by fears of new gun restrictions following Orlando mass shooting.

Given the stellar earnings report, I am surprised that the stock is up less than 10%. A string of misunderstood news led to the selloff of both the gun stocks over the last few weeks. The recent pullback opened buying opportunity for traders and investors alike, and investors who followed all my calls on both the stocks would have roughly made over 30% profits by now.

Going forward, Sturm, Ruger & Company is still expected to report its quarterly results. I expect the company to beat the estimates like its peer. Hence, I think investors should continue holding the stock till Sturm, Ruger & Company releases its quarterly earnings as both the stocks should likely enjoy positive momentum till then.


I think investors should hold both the gun stocks. A great quarter by Sturm, Ruger & Company can push both the stocks 5% higher, which is when I would suggest investors to book profits.
Published on Jun 21, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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