I witnessed another market inefficiency today…
Smith & Wesson reported another great quarter (3rd in a row). They are selling guns like hot cakes, improving operating margins, projecting better than expected earnings/revenue going forward and preparing to buy back their own stock.
How does the brilliant market respond to such news?
Well first it send’s SWHC’s stock to a new 5-year high… then decimates the stock… dropping it 10%… all because backorders came in at a light $300M (a relatively high number historically).
Honestly you need to be insane, or legitimately retarded to sell this stock. Mr. Market is probably a mix of both.
Last I checked the price-to-earnings growth ratio was around .70 and shares are trading at 11X next years earnings. For a company that is projected to grow earnings at a rate of 20% in the next five years… the valuation does not make sense.
The company is well capitalized and in a position to benefit from the lunacy of conservatives who believe Obama will ban their guns… Get em while they’re legal.
I started another position in SWHC today… after a few purchases my cost basis is around $10.10.
Those who follow me know that I have had two exceptionally profitable SWHC trades in the past few months. My batting average is 1.000 and I think it will stay that way… honestly this is as easy as it gets.
The stock could definitely drop another 50 cents or so Monday… but that will only allow me to press my bet even further… because I swear upon Greedypicks.com that SWHC will be trade higher one day soon.
My estimated intrinsic value for these shares is $12.
Another growth driver for SWHC… Females…. it turns out chicks can also pack heat.