Smith & Wesson Reports Record Q4 As Short Selling Declines

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Smith & Wesson Holding Corporation (NASDAQ:SWHC) declared preliminary results for the fourth quarter of 2013 and for the full year ended April 30, 2013.

Smith & Wesson Reports Record Q4 As Short Selling Declines

The preliminary net sales for the fourth quarter came in at $179 million, which is an increase of 38 percent compared to the corresponding quarter of the previous year. The net income from operations was estimated at $0.44 per diluted share against net income of $0.27 per diluted share in the corresponding quarter of last fiscal.

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The cash balance for the full year was posted as $100.5 million. For full fiscal 2013, the preliminary net sales came in at $588 million, which is an escalation of 43 percent from the financial year 2012. The preliminary GAAP net income from operations was recorded at $1.22 per diluted share as against net income of $0.40 per diluted share from continuing operations for the full fiscal 2012.

Smith & Wesson’s Short Selling Decline

Smith & Wesson Holding Corporation (NASDAQ:SWHC), which is a leading player in designing and manufacturing firearms, saw short selling in the stock decline to 10 percentage points, compared to 13 percent points in January, according to data from Bloomberg and London-based Markit Group Ltd.

There was increased short selling in Smith & Wesson Holding Corporation (NASDAQ:SWHC) due to the school massacre in Newtown, Connecticut. But for the first time since the accident, the bearish trend in the stock is at its lowest. The reason behind the declining percentage of short selling is that the new U.S. gun-control laws will not affect the profits of gun companies as severely as previously thought.

The new laws were put forward by the Obama government after the brutal incident of December 14 in which 26 people were killed at Sandy Hook Elementary School. The demand for the firearms increased, contrary to the expectation that it would go down.

Background checks were not accepted by the Senate in April, and according to research done by Pew Research on May 23, the majority of Americans considered that the new law was not possible.

Analyst Take

According to analyst Rommel Dionisio at Wedbush Securities Inc, the perception of the shorters would have been that stricter gun control legislation will put an effect on the earnings results. Dionisio has given neutral rating on the Smith &Wesson.

“The fact that these proposed legislation bills have failed to pass through Congress resulted in some short covering,” he said.

The strategy that sellers adopt, is borrow and sell the stocks expecting a decline in the price of the stock and later returning them to the holder at a lesser price.

Increased Demand

Sales of guns and ammunitions have jumped after the re-election of President Barack Obama. In May, there have been reports that gun shops are facing supply shortages as demand increased amid Congress’ ongoing debate for stricter gun control laws.

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