Why Shares of Smith & Wesson Shot Up

By Markets Fool.com

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Source: Smith & Wesson Holding Corp.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What:
Shares of Smith & Wesson Holding rose as much as 13% on Wednesday after the company announced fiscal third quarter results that came in ahead of Wall Street's expectations and raised guidance for its fiscal year 2015 (ending in April).

So what:
The table below shows the "beat" in the fiscal third quarter and the upside surprise with regard to fourth quarter guidance. In light of the numbers and given Smith & Wesson's typical post-earnings stock price volatility, today's price move is hardly surprising. Fiscal Q3 EPS came in at $0.15, well above analysts' consensus estimates of $0.11 per share. Here is how the company thinks it will do going forward:

Guidance

Analysts' consensus estimate

Fiscal Q4 Revenues

$162 million-$166 million

$159 million

Fiscal Q4 EPS*

$0.29-$0.31

$0.25

Fiscal 2015 Revenues

$532 million-$536 million

$527 million

2015 EPS*

$0.87-$0.89

$0.70

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*Adjusted
Source: Thomson Financial Network, Smith & Wesson Holding

Smith and Wesson CEO James Debney said third quarter results "reflect the successful navigation of a normalizing firearm market following an earlier consumer surge in firearm purchases, combined with the ongoing focused execution of our long-term strategy,"

Now what:
On Monday, the Wall Street Journal wrote:

Smith & Wesson trades at just over 15 times the next 12 months' projected earnings... today's valuation is in line with its average of the past decade... After appreciating so furiously and with the stock no longer cheap, investors would be justified in feeling gun shy.

I think this advice applies to traders, not long-term investors. Smith & Wesson enjoys a very decent franchise; patient owners ought to be comfortable holding the stock even when it is "no longer cheap". Neither volatile firearm sales, nor today's stock price pop ought to change that.

The article Why Shares of Smith & Wesson Shot Up originally appeared on Fool.com.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.