Looking to Buy Smith & Wesson After Drastic Debt Improvement
How can I not like the looks of the company?
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Am I a Smith & Wesson (SWBI) fan? Not especially.
When it comes to handguns, I prefer to stick with my double action Beretta M-9, thank you. I was a rifle expert (as was my dad), pistol expert and machine gun sharpshooter (just missed expert) back during my glory days. My son made up for my shortcomings with the machine gun, by claiming that expert badge for the family. I am, or at least was, a DoD-certified small arms master gunner, so this story does at least interest me.
On Wednesday evening, Smith & Wesson Brands released the firm’s fiscal fourth quarter financial results. For the period ended April 30, Smith & Wesson posted a GAAP EPS of $0.36 on revenue of $178.388 million. While these top- and bottom-line numbers both easily beat expectations, the sales print was good for year-over-year growth of 26.7%.
Gross profit ran 30.9% to $53.09 million as gross margin grew from 28.8% to 29.8%. GAAP net income was $16.2 million, or $0.36 per fully diluted share, compared with $8.6 million, or $0.19 per fully diluted share, for the year-ago comp. Cash flows are healthy. Operating cash flow landed at $74.581 million (+82.7%) while free cash flow grew 108% to $69.747 million. What has the firm done with this boost in cash flows? Pay down debt, which has greatly improved the quality of the firm’s balance sheet. I like that.
The Balance Sheet
Smith & Wesson ended the period with a cash position of $33.352 million and inventories of $156.25 million. This puts current assets at $241.403 million. Current liabilities add up to $75.367 million, including deferred revenues of $19.146 million, which is not a true financial obligation. The firm has no short-term debt on the books. That puts the firm’s adjusted current and quick ratios at 4.29 and 1.51 respectively, making this a very solid balance sheet.
Total assets amount to $512.766 million, very little of which is labeled as either “goodwill” or intangible. Total liabilities less equity comes to $136.207 million including $19.121 million in longer-term debt. That’s down from $79.096 million 13 months ago. How can I not like that?
The Chart
I do want to own SWBI for this portfolio. I do not want to own it on this “gap-up” open. I like how the stock has broken the bearish set-up of the recent double-top pattern. Both relative strength and the daily MACD are suddenly more bullish looking. I will look to initiate the stock either on a late day bout of pre-three-day weekend profit taking or at a later date when the stock decides to test its 50-day SMA from above.
Other Recent Portfolio News
Amazon (AMZN)
On Thursday morning, analyst Brent Thill of Jefferies reiterated a “buy” rating on (AMZN) as well as his $320 target price. Thill is rated at three stars out of five by TipRanks. Over the past two years, he has had a 43% success rate with an average return of -1.9%.
Also on Thursday morning, analyst Justin Post of Bank of America reiterated a “buy” rating on AMZN as well as his $310 target price. Post is rated at five stars out of five by TipRanks. Over the past two years, he has had a 62% success rate with an average return of 28.9%.
Late Tuesday, Bloomberg News reported that Amazon may be facing a potential lawsuit from the FTC with damages that could amount to billions of dollars. On Thursday morning, Bloomberg News is reporting that the FTC has drafted a potential complaint against Amazon over claims the company misled advertisers. Multiple state attorney generals are involved, and the agency could complete its investigation through a lawsuit or settlement.
On Wednesday, we learned that Southwest Airlines (LUV) had partnered with Amazon Web Services making AWS its preferred cloud provider. We also learned that SentinelOne (S), Netskope (NTSK) and Rubrik (RBRK) had announced integrations with Amazon Bedrock Agentcore. On top of that, Sarge-folio holding CrowdStrike (CRWD) announced an upcoming collaboration with AWS concerning cloud security operations and an expansion of the existing Project Quiltworks with that cloud provider.
Evolv Technologies (EVLV)
On Wednesday, analyst Jeremy Hamblin of Craig-Hallum reiterated a “buy” rating on (EVLV) without setting a target price. Hamblin is rated at four stars out of five by TipRanks. Over the past two years, he has had a 46% success rate with an average return of 9.5%.
Ocular Therapeutix (OCUL)
On Thursday morning, analyst Biren Amin of Piper Sandler reiterated a “buy” rating on (OCUL) as well as his $31 target price. Amin is rated at four stars out of five by TipRanks. Over the past two years, he has had a 43% success rate with an average return of 6.6%.
On Thursday, analyst Lachlan Hanbury of William Blair reiterated a “buy” rating on OCUL without setting a target price. Hanbury is rated at three stars out of five by TipRanks. Over the past two years, he has had a 45% success rate with an average return of 4.8%.
Also on Thursday, analyst Colleen M. Kusy of Robert W. Baird reiterated a “buy” rating on OCUL while increasing her target price from $24 to $30. Kusy is rated at one star out of five by TipRanks. Over the past two years, she has had a 40% success rate with an average return of -1.9%.
Ondas Inc (ONDS)
On Thursday, Ondas Inc (ONDS) announced that the firm had entered into a definitive agreement to acquire Cyberhawk. Cyberhawk is a global player in critical infrastructure intelligence, drone-based inspection, visual data management and AI-enabled analytics. Under the terms of the agreement, this transaction is valued at approximately $125 million. Approximately 95% of the purchase price will be funded in cash.
Wednesday’s Intentions vs Wednesday’s Actual Trades
Intention: Sell 100 shares of (SNAP) at or close to the last sale of $5.17 to exit the position
Actual trade: Sold 100 shares of SNAP at $4.91
Intention: Purchase one SNAP Oct 16th $6 call at a reasonable price to close this position
Actual trade: Bought one SNAP October 16 $6 call at $0.47
Intention: Purchase 25 shares of (ALTO) at or close to the last sale of $4.90
Actual trade: Bought 25 shares of ALTO at $5.01
Intention: Purchase 5 shares of (PL) at or close to the last sale of $28.02
Actual trade: Bought 5 shares of PL at $28.50
Intention: Purchase 15 shares of (RXT) at $6 or better
Actual trade: Nothing done
Thursday’s Intentions
Purchase 10 shares of (SWBI) at $16.25 or better
Purchase 10 shares of SWBI at $16.00 or better
Current Positions
Long 125 shares of ALTO at $5.635. Target price: $9. Last sale: $4.98.
Long 3 shares of AMZN at $258.0567. Target price: $324. Last sale: $236.91.
Long 60 shares of EVLV at $5.9895. Target price: $8.50. Last sale: $5.65.
Long 200 shares of OCUL at $8.271. Target Price: $11. Last sale: $9.93.
Short one OCUL $11 September 18 call at $1.65. Last sale: $1.85.
Short one OCUL $9 July 17 call at $0.90. Last sale: $1.74.
Long 150 shares of ONDS at $9.7624. Target price: $14. Last sale: $9.05.
Long 20 shares of PL at $32.865. Target price $55. Last sale: $26.80.
Long 10 shares of (PLTR) at $137.906. Target price: $194. Last sale: $128.02.
Long 8 shares of (RKLB) at $77.9288. Target price: $185. Last sale: $102.86.
Long 35 shares of RXT at $6.4529. Target price: $9. Last sale: $7.19.
Long 150 shares of (SIDU) at $3.0909. Target price: $6. Last sale: $3.16.
Long 135 shares of (SOFI) at $15.8617. Target price: $24. Last sale: $17.69.
Short one SOFI August 21 $20 call at $1.02. Last sale: $1.11.
Long 35 shares of (VELO) at $12.3231. Target price: $36. Last sale: $28.08.
Cash: $399.63.
Portfolio Value: $11,653.98, +16.5% from inception on March 24.
At the time of publication, Guilfoyle was long ALTO, AMZN, EVLV, OCUL, ONDS, PL, PLTR, RKLB, RXT, SIDU, SOFI, VELO and CRWD.
