Shares of both Smith & Wesson (NASDAQ: SWHC) and Sturm, Ruger & Company (NYSE: RGR) traded lower early Friday (down over six percent and four percent, respectively), despite the fact that Smith & Wesson reported solid earnings and forecast better than expected results on Thursday. Smith & Wesson posted a second quarter earnings per share figure of $0.24, more than the $0.23 that the Street was expecting. Revenue came in at $136.60 million, better than the $136.14 consensus estimate.
The company also provided guidance for the third quarter, predicting an EPS in the range of $0.19-0.21 and sales between $126-131 million. Analysts were expecting earnings of $0.16 on revenue of $125.2 million. Further, Smith & Wesson guided for 2013, saying that it would post earnings between $1-1.05 on revenue of $550-560 million. Analysts were looking for earnings of $0.91 on revenue of $538 million. Smith & Wesson actually posted a solid rally Thursday in the after-hours session, a move which carried over into the pre-market on Friday. But, at the open, shares began trading lower and accelerated their drop throughout the morning session.
The move in Sturm, Ruger & Company was likely a sympathy play, as traders projected the weakness in Smith & Wesson onto a company with a similar business model.
Gun manufacturers have had a terrific run since late 2008. The economic crisis coupled with the election of a Democratic president may have contributed to strong demand for firearms. Over the last year, Smith & Wesson shares are up better than 222 percent while Sturm, Ruger & Company has added 59 percent.
On the five year chart, however, RGR has soared 523 percent.
Both of these stocks are extremely strong, and it is likely that traders decided to take some profits in the wake of Smith & Wesson’s earnings report. Although a deeper potential pullback is a possibility, at this point, there doesn’t seem to be anything significant to be concerned about with regard to these two stocks.
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