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What: Shares of gun manufacturer Smith & Wesson shot lower by as much as 10%, following the release of its second-quarter earnings results.
So what: Smith & Wesson used the uncertainties of the potential for tighter gun controls to help drive sales for the second quarter up 48%, to $136.6 million, as net income leapt to $0.24, from $0.01 in the year-ago period. Furthermore, Smith & Wesson upped its upcoming quarterly EPS guidance to a range of $0.19-$0.21 versus Wall Street's expectation of just $0.16. Conversely, the company's backlog shrank considerably, to $333 million, down from $392 million just last quarter, which could signify that a slowdown in orders may be on the horizon.
Now what: Both Smith & Wesson and its prime rival Sturm, Ruger tend to benefit every time an election rolls around, because the uncertainty of gun control gets debated in ritualistic fashion. In similar déjà vu fashion, both companies' orders tend to taper off shortly after the elections are over, as investors realize that they've bid shares up far beyond the gun makers' potential. While I'm not overly pessimistic on Smith & Wesson, I'm not overly eager to jump into the stock here, even after today's nearly 10% tumble. For now, I'm perfectly happy being an innocent bystander and waiting on the sidelines, while keeping my eye closely on that backlog figure.
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The article Why Smith & Wesson Shares Barreled Lower originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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