Is There Hidden Value in Smith & Wesson Brands (SWBI)?

Smith & Wesson Brands logged a 0.69% change today, and is now trading at a price of $11.03 per share.

Smith & Wesson Brands, Inc. designs, manufactures and sells firearms worldwide. The small-cap Consumer Discretionary company has returned a 3.56% dividend yield over the last 12 months.

The Company Has an Irregular Stream of Positive Cash Flows:

2019-04-30 2020-04-30 2021-04-30 2022-04-30
Revenue (k) $638,731 $675,299 $1,057,041 $865,601
Revenue Growth n/a 5.73% 56.53% -18.11%
Gross Margins 22.9% 24.54% 42.48% 43.27%
Gross Margins Growth n/a 7.16% 73.11% 1.86%
Operating Margins 6.81% 7.45% 30.24% 29.07%
Operating Margins Growth n/a 9.4% 305.91% -3.87%
Net Margins 2.88% -9.07% 23.84% 22.47%
Net Margins Growth n/a -414.93% 362.84% -5.75%
Earnings Per Share $0.34 -$1.11 $5.05 $4.27
EPS Growth n/a -426.47% 554.95% -15.45%
Diluted Shares (MM) 55 55 50 46
Free Cash Flow (k) $22,634 $79,992 $292,650 $113,559
FCF Growth n/a 253.42% 265.85% -61.2%
Capital Expenditures (k) $34,465 $14,744 $22,684 $24,255
Net Debt / EBITDA 1.68 -2.42 n/a -0.42

Smith & Wesson Brands Is Undervalued at Today's Prices:

Smith & Wesson Brands has a trailing twelve month P/E ratio of 8.55 compared to the Consumer Discretionary sector's average of 22.33. The company doesn't issue forward earnings guidance, and the mean growth rate of its last 5 years of reported EPS is 26.5%. On this basis, the company's PEG ratio is 0.32. But we cannot assume that Smith & Wesson Brands's impressive past EPS growth rate is sustainable. It is more prudent to calculate the company's PEG ratio with the expected 5-year EPS growth rate of the entire market, which is 13.05%. This more cautious approach gives us a PEG ratio of 0.66,which still suggests that the company's shares are undervalued.

Furthermore, Smith & Wesson Brands is likely undervalued in terms of its equity because its P/B ratio is 1.698 compared to its sector average of 3.12. The company's shares are currently trading -39.02% below their Graham number, implying there is a margin of safety for the stock. The Graham number is calculated according to the formula:

√(22.5 * 5-year average EPS * book value per share) = √(22.5 * 1.78 * 8.16) = $18.08

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.