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SWBI

Smith & Wesson Brands NasdaqGS:SWBI Stock Report

Last Price

US$14.70

Market Cap

US$672.7m

7D

0.8%

1Y

-40.5%

Updated

10 Aug, 2022

Data

Company Financials +
SWBI fundamental analysis
Snowflake Score
Valuation5/6
Future Growth0/6
Past Performance2/6
Financial Health6/6
Dividends3/6

SWBI Stock Overview

Smith & Wesson Brands, Inc. designs, manufactures, and sells firearms worldwide.

Smith & Wesson Brands, Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Smith & Wesson Brands
Historical stock prices
Current Share PriceUS$14.70
52 Week HighUS$25.49
52 Week LowUS$12.78
Beta0.83
1 Month Change9.87%
3 Month Change6.44%
1 Year Change-40.51%
3 Year Change86.08%
5 Year Change-20.11%
Change since IPO804.62%

Recent News & Updates

Jul 18

Smith & Wesson: Cyclical Opportunity With Buybacks On The Horizon

SWBI is a deeply cyclical company and any view on it should first assess the stage of that cycle. I intend to explain how this cycle works and show that right now, SWBI is close to the bottom of it. Even considering bottom-of-the-cycle financials, the stock is cheap in absolute and relative terms. The potential of share buybacks in connection with a specific event makes the case even more compelling. Editor's note: Seeking Alpha is proud to welcome Pragmatic Value Investing as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more » Smith & Wesson Brands, Inc. (SWBI) designs, manufactures, and sells firearms, but through the years has ventured into other segments that are somewhat related to their main business, like outdoor products and security services. But since the spinoff of the Outdoor division on August 24, 2020, the company its back to its roots in the firearms industry. Understanding The Cycle I have read many articles about the company here, and in my opinion, most do not tackle the main characteristic of SWBI: That is a deeply cyclical business and any bullish or bearish take on it should start and end with analyzing the stage of the cycle in which the company is at any given moment. The next chart tracking the dynamics between the stock performance and NICS Firearms Background Checks published by the FBI is a good way to visualize this cyclicality. And it shows that right now the stock is much closer to the bottom of the cycle. FBI The company is classified in the Consumer Discretionary Sector, but the good news is that its cycle is pretty much unrelated to the consumer cycle that you can track with Advanced Retail Sales. And given the current macro backdrop, that is a critical issue. FBI and U.S. Census Bureau Another important point to consider is the fact that these cycles affect the company through an inventory cycle in two different stages of the distribution chain. The one that you can track by looking at the inventory figures that the company reports, and another that you cannot see (or maybe you can, and I don’t know how) that relates to the inventory of the distribution channel. With the company’s inventory going one or two months behind the inventory of the distribution channel, the changes in Firearms sales (excluding all non-firearm sales) tend to be higher than the change in NICS statistics in what might be explained by some form of bullwhip effect as you can see in the next chart. FBI and SWBI financial releases This chart also serves the purpose of showing that the raw NICS statistics published by the FBI are a pretty good proxy to track the cycle, even though I am aware that the company tracks the adjusted NICS reported by the NSSF. All those charts shows that SWBI is not a stock to just buy and forget about, it’s a deeply cyclical company in an industry that has sufficient industry data to make those cycles somewhat predictable and you should try to buy the stock near the bottom of the cycle as measured by NICS statistics and sell or even short near the top. The question now is if we are at the bottom of the cycle or not. My view is that we are close to it, but if I was trying just to time the cycle, I should have waited to put this out after the next quarterly results encompassing the months of May through July. But there is a catalyst that may manifest itself in the next few weeks. More on that later. First, let's look at how well has the company done during the current downturn in the NICS cycle with respect to past episodes. For that, I used 6 months metrics to isolate the last two quarters that incorporate literally the worst 6 months decrease in NICS figures in the history that the FBI reports (starting December 1998). FBI and SWBI financial releases I would say it has done pretty well. The reduction in margins has been moderate considering the level of reduction in NICS figures. A critical point relating to their ability to maintain margins is the management of inventories. FBI and SWBI financial releases And regarding this point they have performed in line with previous cycles, but much better than during the last downturn. Anyway, I expect inventory to quarterly annualized sales to increase and probably peak on the next quarter considering that two of the months (may/June) that make that quarter are showing a reduction of 21.7% versus last year and for the fact that the next quarter tend to be the weakest in terms of seasonality. So again, if you just want to time the bottom of the cycle, you should wait for the next quarterly results. Solid Balance Sheet and Compelling Valuation Changing subjects, it's important to point out that the company is in one of its better positions historically speaking in terms of indebtedness, with negative net debt and $120 million in cash. SWBI financial releases Another point is that the stock is trading very close to the bottom range of Price to Tangible Book Value at less than 2 times. And that, for a company that on average has printed a Return on Tangible book value close to 40% seems quite attractive. SWBI financial releases I know that I am subtracting goodwill and long-lived asset impairments to get to that return, so let’s check the historical impairments that the company has reported in the past 14 years to check if that is reasonable. The first one occurred in the quarter ending October 2008, at the peak of the 2008 financial crisis, when they reported a $98 million impairment. This was the only impairment related to their main firearms business. The second one occurred during the quarters ending October 2010 and January 2011 for a total of $90 million relating to the security services segment that they exited a couple of years later. The third one occurred during the quarter ending January 2019 for $10 million relating to part of their business that was later integrated into the outdoor segment that was spun out on august 2020. And the final one occurred during the quarter ending April 2020 during the peak of the COVID outbreak for $99 million also relating to the outdoor division that they later spun out. So, I think it’s valid to look at RoTBV ex those items as long as the company stays focused on their main line of business. And of course, if at any time management starts branching out into somewhat related new businesses, I would be the first to sell my position, their track record is not the best one outside of their niche. But let’s look forward a little bit to see how the company should look after the next two quarters when the whole impact of the downturn should be reflected. In the last call management pointed out to calendar year 2019 as a framework for the coming months, so I am assuming the next 6 months (July – December) of the NICS figures are going to be the same as they were in 2019 and then I repeat 2022 month by month in 2023 and 2024 without any upturn in demand to be extra conservative (and going against historical patterns). On the next few charts, the red dots mark the last real data and after that are projections. FBI, SWBI financial releases and author estimates That would translate (in the next chart) into a reduction of more than 5 percentage points in Operational Margin even though the last two quarters already faced a reduction in sales bigger than what I expect for the next two. FBI, SWBI financial releases and author estimates And that in turn would translate into a 12-month EBITDA falling from $282 million to $151 million at the absolute bottom of the cycle. Under those assumptions, with today’s EV will leave the company trading at a valuation level of 3.46 times EV/EBITDA, which does not seem demanding and its way bellow historical averages. SWBI financial releases and author estimates Data by YCharts During the last 7 years on an aggregate basis the company has turned around 65% of EBITDA into FREE CASH FLOW. So, if you assume that the company stays at that bottom of the cycle forever (that is more than conservative in my opinion), the company should be able to generate $99 million of FCF which puts the stock at a decent 16% FCF yield and a dividend yield of 3% that is covered with less than 20% of FCF. But there is one unfortunate situation, the company has been forced by the risk of state legislation in Massachusetts that would prohibit the manufacturing of certain firearms, to move its headquarters and part of its manufacturing to Tennessee. This process would require $120 million in capex and around $12 million in one-time expenses, so FCF for the next 12 months should be close to zero or slightly negative. Apart from that, if you agree with what I consider to be conservative assumptions I don’t see any other significant issue to point at. Buybacks So, let’s go back to that catalyst: stock repurchases. The company completed its latest stock repurchase authorization during the quarter ending January 2022 and they are not allowed to continue with more stock repurchases until the second anniversary of the spinoff of the outdoor segment into what is today American Outdoor Brands, Inc. (AOUT). The following is a comment from the CFO taken from the transcript of the latest quarterly earning call.

Shareholder Returns

SWBIUS LeisureUS Market
7D0.8%-0.2%1.2%
1Y-40.5%-47.7%-11.6%

Return vs Industry: SWBI exceeded the US Leisure industry which returned -49.2% over the past year.

Return vs Market: SWBI underperformed the US Market which returned -13.5% over the past year.

Price Volatility

Is SWBI's price volatile compared to industry and market?
SWBI volatility
SWBI Average Weekly Movement8.6%
Leisure Industry Average Movement7.9%
Market Average Movement7.9%
10% most volatile stocks in US Market17.0%
10% least volatile stocks in US Market3.2%

Stable Share Price: SWBI is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 9% a week.

Volatility Over Time: SWBI's weekly volatility (9%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
18521,719Mark Smithhttps://www.smith-wesson.com

Smith & Wesson Brands, Inc. designs, manufactures, and sells firearms worldwide. The company offers handguns, including revolvers and pistols; long guns, such as modern sporting rifles, bolt action rifles; handcuffs; suppressors; and other firearm-related products under the Smith & Wesson, M&P, and Gemtech brands. It also provides manufacturing services comprising forging, heat treating, rapid prototyping, tooling, finishing, plating, machining, and custom plastic injection molding to other businesses under the Smith & Wesson and Smith & Wesson Precision Components brand names; and sells parts purchased through third parties.

Smith & Wesson Brands, Inc. Fundamentals Summary

How do Smith & Wesson Brands's earnings and revenue compare to its market cap?
SWBI fundamental statistics
Market CapUS$672.72m
Earnings (TTM)US$194.49m
Revenue (TTM)US$864.13m

3.5x

P/E Ratio

0.8x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
SWBI income statement (TTM)
RevenueUS$864.13m
Cost of RevenueUS$479.56m
Gross ProfitUS$384.56m
Other ExpensesUS$190.07m
EarningsUS$194.49m

Last Reported Earnings

Apr 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)4.25
Gross Margin44.50%
Net Profit Margin22.51%
Debt/Equity Ratio0%

How did SWBI perform over the long term?

See historical performance and comparison

Dividends

2.7%

Current Dividend Yield

8%

Payout Ratio