While earnings season is nearly over, there are still a handful of off-cycle earnings reports that I have on my radar. In just a few hours, one of my top stocks will release its fiscal first-quarter results. With 34% forecasted sales growth and 66% forecasted earnings growth, this stock is an excellent buy on the dip…
I’m talking about Smith & Wesson Holding Corp. (SWHC), which is one of the leading manufacturers of firearms in the U.S. Smith & Wesson is known for its handguns, long guns, hunting rifles and firearm-related products and accessories. There are several reasons to buy SWHC right now.
First, Smith & Wesson has been on a buying spree. In early August, the company announced plans to acquire Crimson Trace Corporation for $95 million. Crimson Trace develops laser sighting systems and tactical lighting for firearms. The company has more than 225 products and is the leading brand of laser sights in the world. In mid-July, Smith & Wesson also announced that it will acquire Taylor Brands for $85 million. Taylor Brands provides knives and specialty tools, and its brands include Schrade, Old Timer, Uncle Henry and Imperial. The acquisition will help Smith & Wesson expand its Accessories Division.
Second, firearm sales are growing at a record pace. According to the FBI, July 2016 marked the 15th consecutive month of record background checks. Compared with July 2015, background checks jumped 37%. Background checks often represent the level of gun sales. So far this year, the FBI has conducted about 16.0 million background checks. That is 70% of the total background checks in 2015, which leads many to believe that 2016 will be a record year for gun sales.
Third, tonight’s earnings report is shaping up to be a good one. As I mentioned, analysts are calling for 34% annual sales growth and 66% annual earnings growth. Better yet, the consensus EPS estimate has risen 39% in the past 90 days. This suggests that analysts are struggling to get a handle on Smith & Wesson’s profit potential, and that it will post another sizeable earnings surprise (as it has for the past several quarters in a row).
I must also mention that the stock trades at a reasonable valuation. With a current P/E of 17 and a forward P/E of 13, SWHC is right around the industry average.
For these reasons, SWHC is an A-rated Strong Buy in Portfolio Grader. I also recommend SWHC in four of my premium newsletters: Emerging Growth, Ultimate Growth, Navellier Family Trust and Platinum Growth Club. If you currently own SWHC shares, I’d keep tabs on tonight’s earnings report.