You Won't Believe the Huge Mistake This Gunmaker Is About to Make

By Markets Fool.com

Image source: Getty Images.

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With one of the best-known brand names in the industry, Smith & Wesson Holding (NASDAQ: SWHC) wants to shoot it all to pieces. Like a road sign obliterated by a shotgun blast, the gunsmith wants to change its company name to reflect its growing interest in accessories and extreme outdoors sporting goods.

The great outdoors

Stretching all the way back to 1852, Smith & Wesson can claim a heritage nearly synonymous with the firearms industry, every bit as much as Colt, Remington, and Winchester. But despite the contemporary market's buying its guns hand over first, the gunslinger is planning for the day when sales cool down, as they inevitably will. Whether that happens sooner, as many Wall Street analysts think, or much later, Smith & Wesson wants a business in place to pick up the slack when it happens.

Back in 2014, it bought Battenfeld Technologies as the vehicle to achieve that diversification of revenue streams. Although accessories comprise only 7% of net revenues, or $14.5 million, in its fiscal 2017 first quarter, this year alone it has purchased knife maker Taylor Brands, laser-sight manufacturer Crimson Trace, and most recently camping and survival gear company Ultimate Survival Technologies.

None of these acquisitions alone will tilt the scales for it, probably not even aggregating them, but they highlight what Smith & Wesson sees as important to its future and underscores why the gunmaker announced last week it will be holding a special shareholder meeting to vote on switching the corporate name from Smith & Wesson to American Outdoor Brands. If approved, it will be a big mistake.

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A rose by any other name

According to the notice, Smith & Wesson says "the proposed name change will better reflect our increasingly diverse business and stated vision to become the leading provider of quality products for the shooting, hunting, and rugged outdoor enthusiast." It points to the diverse products it sells, including binoculars, knives, saws, and flashlights, plus all the camping and survival gear it just bought as the rationale for needing a new company name. Instead of just being identified with its firearms business, it wants to reflect the broad array of goods it sells.

Image source: Getty Images.

While there is some sense to the argument -- and it takes great pains to note that its firearms will still be sold under the Smith & Wesson name ("a brand that is one of our strongest assets and a brand that must be preserved, supported, and protected") -- there are still problems with the move and investors ought to reject it.

First, Smith & Wesson is immediately recognizable. Companies spend millions of dollars, if not tens of millions, trying to build up a name and reputation with the instant recognition the gunmaker enjoys. For example, it already makes knives under the Smith & Wesson brand, and that should be seen as a positive development that it's able to extend its brand in such a fashion.

Second, the name it's chosen, American Outdoor Brands, is a bland replacement, sounding as if it was chosen for its ability to blend into the background, which isn't something a company should strive toward. You want your company to stand out, and this seemingly focus group-tested name for not generating controversy doesn't do that.

Smoothing out the bumps

Smith & Wesson may also be attempting to reduce the volatility of its stock. Whenever a tragic shooting occurs and gun control is raised as a possible solution, shares of Smith & Wesson and industry peer Sturm, Rugertumble. Yet other gun manufacturers, such as Vista Outdoorsand Olindo not, perhaps because their corporate names are more amorphous, reflect the sporting-goods brands or the chemicals they sell, respectively, and not the fact that the former owns Savage Arms and the latter the Winchester brand.

Still, diluting if not burying a storied, iconic name like Smith & Wesson speaks of corporate marketing imperatives and makes its firearms a secondary asset despite the primacy of the importance they play.

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