Long Shots & Pot Shots
T. M. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Despite living in a hunting state, I've never been a great fan of firearms. Still, I have respect for the skill and craftsmanship involved. With firearms yet again in the headlines, guns and ammo have taken on a greater political dimension than ever before. Unfortunately, when politics get involved stocks can suffer unduly.
Don't fret, there is a silver lining: when headlines bring a stock lower than its actual worth, the stock often recovers -- meaning that a drop in price now can be profit the investor who pays attention to a business's true value.
Plenty of Bang, Not So Much Bling
Smith & Wesson Holding (NASDAQ: SWHC) is one of the few publicly traded firearms manufacturers in the United States, and a household name to boot. Currently trading at 78% above its 52-week low, Smith & Wesson would seem to be weathering the hard times fairly well, except that the gun makers are also trading 20% below their 52-week high. Does this mean it's time to move in and grab a piece of this affordable stock?
Since January of last year, Smith & Wesson has managed to bring its sales up from remarkably abysmal levels, with an average increase in sales of 2.5% over the past three quarters. Costs have similarly increased at an average 3.4%, out-pacing sales and eating into the progress they've made over the past year. Receivables have seen a concomitant rise over that same three-quarter period, rising on average 14% per quarter, outstripping any progress made in actual sales themselves.
While Smith & Wesson's profits appear to be dwindling in the short term, their financial stability is enviable. With a current ratio hovering below 3, a more than comfortable margin for the minor debt the manufacturer has gradually squelched, there is little fear that Smith & Wesson's stalling profits will endanger the stock in the near future.
As noted, Smith & Wesson is objectively more affordable than its competitors, which is why a forward PEG of 0.29 makes it all the more tantalizing for a growth-hungry investor.
Not so Much Bang?
Sturm, Ruger & Company (NYSE: RGR) is one of those competitors. With a considerably greater market cap (about two times that of Smith & Wesson, in fact) and an equally higher stock price, investors may wonder if Ruger is the safer, stabler bet between the two. 57% above its 52-week low and 10% below its 52-week high, the stock is positioned similarly to Smith & Wesson in terms of price and opportunity, and with sales increasing over a similar three-quarter period by an average 2.6%, whereas cost of sales rose by an average 3.71%, denoting a similar lag in profits for Ruger.
Ruger's current ratio is even stronger than Smith & Wesson's at 3.1; a lack of long term debt certainly contributes to that position. As receivables have dropped by 1.5% on average over the past three quarters, they are in a comparatively better position than Smith & Wesson.
For someone who feels personally uncomfortable investing in firearms, nonlethal solutions like TASER International (NASDAQ: TASR) and its signature personal defense products offer an alternative. Don't let yourself get caught up in a desire to invest for your heart's sake; first, let's see how TASER's financials stack up against its personal defense competitors. After all, the news hasn't been too rosy for TASER lately.
TASER is small; a market cap of $358.9 million brings it nearly below the small-cap threshold that most Fools are comfortable investing in. Having dropped nearly 30% from its recent 52-week high; when paired with an average increase in sales of 7.8% over the past year, TASER would appear to be ripe for the plucking by bargain investors -- were it not for the concomitant 14% average increase in cost of sales over the same period. TASER's ability to produce sales is quickly being outstripped by its ability to pay through the nose for those sales.
TASER's PEG ratio is, finally, over an astounding 6. Often politics and news can drive a stock price well beyond the real of reason, and this looks to be yet another example of investors allowing themselves to be led by hysteria and greed rather than the fundamentals of finance. TASER is either overvalued or under-performing, and neither warrants an investment at this time.
Long Shots versus Pot Shots
What gives a possible investor pause is Smith & Wesson's forward PEG of 0.29 and the equally low objective price of the stock; someone hunting a growth stock for the coming year might do well to pick Smith & Wesson. Ruger, with its larger market cap and stupendous dividend of 2.8%, might be a better fit for the long term, retirement-oriented investor.
tmloyd has no position in any stocks mentioned. The Motley Fool owns shares of Sturm, Ruger & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!