SMITH & WESSON BRANDS, INC.

Branded but cyclical firearms maker with solid cash conversion yet only median ROE and thin margins.

Strengths

• Strong cash generation: FCF margin 17.3% (78th pct) and OCF margin 21.8% (78th pct), with healthy current ratio 3.2
• Double-digit revenue growth (10.4%) and net income up 38%, plus 170-year brand equity

Risks

• ROE just 4.9% (50th pct) and gross margin 26.9% (28th pct) — no standout return on capital
• Highly volatile, demand-driven industry; history of disclosed material weaknesses in internal controls

Notable findings

• Material weakness• We have identified material weaknesses in our internal control over financial reporting in the past and may identify material weaknesses in our internal control over financial reporting in the futur
• Customer concentration~38% of revenue from one customer/distributor — 37 New products represented 38
• Buying back stockNet buyback — share count -5%/yr over 4y