Our old friend and teaser adversary Louis Navellier hasn’t been spinning so many teasers lately — I like to think he’s terrified of the Stock Gumshoe, and of the way that my brilliant, amusing, and awe-inspiring commentaries tear his teasers to shreds and lay waste to his marketing efforts. Sure, it’s a fantasy, but we all need our little fantasy worlds to keep us going, right?
But like all the other newsletter pushers, they can’t give up on a technique that works, so they’re trying once again to see if they can “tease” a stock that Louis Navellier thinks will double after reporting blowout earnings … and in so teasing, convince you to subscribe to Emerging Growth for a thousand bucks a year.
Well, you can go ahead and subscribe if you like — I know people who both love and loath Louis, so it takes all kinds (and this is the top ranked of Louis’ newsletters according to Stock Gumshoe Reviews, though that’s based on just a few reviews so far). But whatever you do, don’t dish out $995 just to find out the name of that $4 doubler that he thinks will go to $8 — for that, you can rely on your friendly neighborhood Stock Gumshoe as he strikes terror into teasers from coast to coast.
So who is this tantalizing teaser temptation from Navellier? As usual, we get a few clues — just enough to make you think it’s real, and that the rush is on …
“One of the country’s highest-rated, fastest growing, and little-known recession-beating consumer stocks declares earnings on December 3rd.
“Last quarter, the company reported 447% earnings growth and our research shows this company’s newest report could knock the socks of those numbers.
“When that happens—hold on to your hat—the company’s 90% gains to date could like a drop in the bucket.”
Sounds good, right? Not many folks are throwing out 400% growth these days. But there’s more!
“A forward P/E ratio of—get this—just 8
“A market cap of under $262 million
“Handed investors 90% gains year to date
“One of the strongest buy ratings of any of our stocks, and
“Is about to clobber Wall Street and double investors’ money again.”
All nice, verifiable facts, except for that last bit of prognostication … so we should be able to identify this guy, eh? Why won’t Louis tell us who it is?
“Unfortunately, I Can’t Tell You More or Give You This Company’s Name Here!
“You’ll find it only on my private website as an exclusive for my subscribers of record.
“Hedge funds and the media follow me too closely,
“The stock is too thinly traded, and
“Naming it in this email would make it impossible for you to get it at the buy-below price.
“So I can’t even hint at what industry or sector this is in because I DON’T want the rest of Wall Street to bid this one higher until after you get in….”
So no hints, perhaps, but he can’t resist throwing this tidbit in, too …
“It’s the kind of company that Boxer, Pelosi, Frank, Reid, Schumer and the rest of the politically correct crowd bristle at its success”
Well, it pains me so to spill your beans, Mr. Navellier … but the mighty Thinkolator needed a mere few moments to confirm that this stock is …
Smith & Wesson Holdings (SWHC)
Ring a bell? Yes, Navellier had a teaser ad making the rounds just a few months ago, back in July, for fellow firearms manufacturer Sturm Ruger (RGR) — and that ad used a lot of the same language, so if it sounds familiar you can give yourself a nice gold star for being an attentive Gumshoe student — bravo!
What happened after that prediction? He was telling us at the time that RGR would deliver 500% earnings growth, and that investors had to get on board quick. Also sounds familiar, eh? Well, at the time he sent that ad around RGR was trading at around $12.50. In the next quarter, it did have awesome earnings growth — 800% instead of 500%, pretty great. That earnings release came about two weeks after Navellier’s teaser, and the stock did go gradually up into earnings. After that massive earnings growth was announced, the stock briefly spiked up to about $15 during the day on that same day, but it closed far lower … coincidentally, right back around $12.50 again. The shares floated around that same price for the rest of the Summer, until falling again with the latest earnings release at the end of October (another huge earnings growth number, 2,750% growth this time, another investor selloff).
I say this just to provide fair warning: The gun makers have been hot over the last year or so, in part because of “end of the world” fears but more likely because of “look out for new regulations” fears, though the Obama administration has shown it’s not all that interested in pushing gun control as one of their main goals — that may change, of course, but it sure looks like they’ve bigger fish to fry first. There were articles about this right and left all Spring and Summer, about how gun shops were selling out of semiautomatic rifles and ammunition, and all of the manufacturers clearly rode a nice earnings boost as a result in what has been for many years a very volatile business. This year might be the first time since 1999, for example, that Sturm Ruger posts over $200 million in sales, so perhaps there’s something to the “anti-cyclical” aspect of the business, but it seems currently to be much more driven by politics.
But we’re looking today not at Navellier’s old pick, but at his new one — Smith & Wesson, one of the great storied names in firearms, based in Springfield, MA, (also home to James Naismith and Dr. Seuss, so a lot of unique American stories began there — and it’s a mere 100 miles or so up Interstate 91 from Sturm Ruger’s headquarters in Southport, CT, incidentally). SWHC has certainly been, at least when compared to RGR, their major publicly traded competitor, the volatile choice in handgun makers — while RGR shares have essentially stood still over the last ten years, with pretty minor bounces, SWHC has rollercoastered like crazy, showing everything from a 1,000% gain to a 70-80% loss (depending, of course, on when you bought and sold).
SWHC is right now trading at a forward PE of about 8, as Navellier teases, and it’s roughly in the middle of the range where it has traded for the past year at about $4.60. They will be announcing their next quarterly earnings on December 3, and analysts expect them to earn nine cents a share (which would again be dramatic growth over last year, when they earned one cent in the same quarter), but they also predict that the torrid growth will slow down a bit, with earnings growth looking more like 10-15% in the years to come … which is why the shares aren’t priced at the massive PE you might expect from a firm with earnings jumping 500%+ year over year.
So unless you’d choose to jump in and follow Navellier’s strategy of relying on momentum and quantitative indicators and believe that SWHC will keep beating estimates largely because it has been doing so lately, the question is how you think the business will perform in the future. Navellier’s scorecard on SWHC is here if you want to see how it gets “graded” by his system, and you might note that RGR is similarly highly ranked, in case you’re curious.
We already know some of the negatives for Smith & Wesson — that their business goes in pretty big cycles and depends very heavily on retail gun buyers. On the positive side, there is of course this dramatic earnings growth that they had over the past year and may continue to have — and even growth of 10-15% a year sounds quite nice if you’re trading at a Price/Earnings ratio of 8 (ie, the Price/Earnings/Growth ratio is well under the “bargain” level of 1 at .6 or so). Then again, that growth has been so dramatic because the earnings numbers were so lousy a year ago.
They’re also trying to diversify, they just bought a corporate perimeter security company (Universal Safety Response) that they think will help them boost margins over the next couple years, and they recently announced that they believe they will be almost doubling their revenues by 2014. So that also sounds encouraging. But in the next couple years, it sounds like the rise and fall of the chart will have a lot to do with the sentiment of gun buyers — the sales have still been brisk in recent months, and the company credits the weak economy with increasing his customers’ need for more personal protection, but we also saw plenty of speculation over the Summer, as in this IBD article and this AP article, that the rising tide of gun sales might be a bubble.
I’m no expert, and don’t personally want to own this stock — but it’s hard to argue with the numbers, especially with their attempts to diversify their revenue base and the reasonable valuation on the stock. They carry a bit of debt, and this is one might want to watch closely given their historic volatility (that momentum cuts both ways), but it’s certainly not expensive. If you’ve got a feeling about Smith & Wesson … or Sturm Ruger (similarly valued, but unlike SWHC pays a dividend), or any of the other competitors, feel free to let us know with a comment below.
And if you’ve ever subscribed to Navellier’s Emerging Growth, by all means, please click here and take a moment to review it for the edification fo your fellow investors. Thank you!
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.