Has Smith & Wesson Peaked?SWHC) over the last few months. I recommended buying the stock or buying $30 call options when the stock was trading near its 52-week lows. Since then, Smith & Wesson has shot up close to 40% whereas the call options are up 300%. I believe investors who have witnessed gains by following my buy recommendations should start booking profits.
The primary reason for my recent bullishness was the strong gun sales trend.
As a result of a strong sales trend, Smith & Wesson reported stellar earnings last week. Smith & Wesson reported EPS of $0.57, easing past the analysts’ estimate of $0.53. The company also reported revenue of $207 million, recording a significant jump of over 40% year over year, and again surpassing the analysts’ estimate by a wide margin of $8.84 million.
For fiscal Q2, Smith & Wesson sees net sales of $220 million-$230 million, towering above the consensus estimate of $166.2 million. On the earnings front, Smith & Wesson expects Q2 non-GAAP EPS of $0.53-$0.57 as compared to the consensus for $0.35 per share. For the full year, Smith & Wesson forecasts sales of $900 million-$920 million, again way above the consensus for $778.4 million and EPS of $2.38-$2.48 as opposed to the estimate of $1.94.
Given the quarter Smith & Wesson has had, I was expecting the stock to jump at least 10%. However, as of writing, Smith & Wesson is up only 5%. With the stock trading close to its 52-week highs and failing to break past it despite reporting a stellar quarter, I expect it to face selling pressure in the coming weeks.
As a result, I think Smith & Wesson investors should start booking profits. Smith & Wesson has performed very nicely for investors over the last few weeks, and although I do think the stock’s fair value is above its current market price, I think its upward movement will be limited. I expect Smith & Wesson to face severe selling pressure when it crosses the $30 mark, and as a result, I would recommend investors to take their profits off the table.
Disclosure: No position
Published on Sep 6, 2016By Ayush Singh