Markets

Why Smith & Wesson Brands Stock Surged 20% This Morning -- Then Gave Most of It Back

What happened

On its first day of trading as a once-again separate company, the guns business of Smith & Wesson Brands (NASDAQ: SWBI) saw its shares leap more than 20% in early trading Tuesday. They later settled down to the 5.5% gain seen at 11:45 a.m. EDT.

Helping to boost the shares today is a new analyst report out of Cowen & Co.

A cartoon of people at the start line of a footrace

Image source: Getty Images.

So what

In today's report, summarized by StreetInsider.com, Cowen reinitiates coverage of Smith & Wesson stock, calling it "a firearms pure play with robust FY21 prospects from surging gun demand." Cowen is a fan of this business, rating the stock "outperform" (i.e., buy) with a $24 price target.

The banker says it would be especially bullish on the stock's prospects in the event that former Vice President Biden continues to lead President Trump in election polls.

Now what

So much for why the stock gained so much early this morning. Now why is it giving up so much of those gains as we approach afternoon?

Here, a note of caution: "Our above-consensus FY21" earnings prediction, says Cowen, may represent "a cyclical peak" in how much Smith & Wesson can earn, such that future earnings may weaken. The analyst argues that the stock's current valuation is cheap enough to offset this risk. But with Smith & Wesson shares having nearly tripled over the past year, it seems some investors are content to take their winnings and leave the table today.

10 stocks we like better than Smith & Wesson Brands, Inc.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Smith & Wesson Brands, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of August 1, 2020

 

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SWBI

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More