John F Kennedy and the Firearms Industry

John F Kennedy was the United States' 35th president, serving from 1961 to 1963, until his tragic assassination in Dallas, Texas. His legacy helped form the basis for modern liberalism in the United States. On the 48th anniversary of his death, it is important to remember Kennedy's impact on American politics, and ultimately, the American way of life.

What facet of American society directly played a role in this tragedy? Primarily due to World War I, World War II, Korea, and Vietnam, the firearms industry rapidly developed during the 1900s. Although the second amendment gives the right to bear arms to all citizens, the significant advancement seen with firearms allowed people like Lee Harvey Oswald to procure weapons like sniper and assault rifles. The rampant growth in weaponry advancement has not let up: the gun used to kill Kennedy is probably obsolete by today's standards, making the Secret Service's job all the more difficult.

One fairly recognizable company that manufactures and distributes firearms is Smith & Wesson SWHC. Smith & Wesson manufactures rifles, handguns, and a range of accessories for laymen as well as professionals. It also offers perimeter security solutions for military, government, and corporate facilities. Had the United States' Constitution's second amendment not existed, companies like Smith & Wesson may not even exist. If companies like Smith & Wesson did not exist, JFK may have been able to complete his presidency.

The company has a storied history: it was founded in 1852, its pistols and revolvers becoming staples to policemen across the world. Since its inception, Smith & Wesson has been compliant with the government and has been very open about its operations. In fact, it agreed with Bill Clinton in 2000 revamp its safety and design standards, much to the dismay of some clients. Lastly, it was acquired by Saf-T-Hammer in May 2011, although the combined entity adopted the name "Smith & Wesson Holding Company."

Smith & Wesson has had a rocky past over the last several years. From volatile revenue figures to increasing operating expenses, the firm has been profitable as well as loss-ridden. Interestingly, in 2011, the company's revenues fell but its expenses continued to increase. This is not a positive pattern, as it appears that sales, general, and administrative expenses are the ones increasing the most. Expenses like salaries and marketing costs could fall under this category, and one can only hope that the latter expense was more prevalent than the former. Impairment of long-lived assets also brought down net income significantly in 2011 and 2009, which essentially means that it had to declare some of assets worthless.

Despite the significant loss in the income statement, the charges for impairment was non-cash related, and was merely an artifact of balance sheet dynamics. Moreover, other positive working capital changes resulted in positive cash flows from operations over the last several years. Moreover, the company has been ramping up capital expenditures, which may mean that it is ramping up physical expansion efforts. Lastly, the company has been issuing debt over the last several years, but has been able to pay it off in full amounts, very quickly. Considering all the cash inflows and outflows, the company has successfully increased its cash pile over the last few years.

Smith & Wesson also appears to be turning over its inventory consistently. It has also been able to manage its receivables, meaning that it is responsibly controlling the flow of cash from that particular account. As expected, the firm's PP&E has increased consistently over the years. Interestingly, the assets written down were tied to the goodwill and intangible accounts. This means that it had to write down the effects of historical acquisitions along with any intellectual property that it acquired in those transactions. On the liabilities side, the company has been able to drive down long-term debt and other liabilities. It has also been able to decrease short-term debt and payables accounts. Due to the massive write down, the last year's retained earnings account decreased significantly.

Smith & Wesson represents an iconic brand that is easily recognizable amongst firearm connoisseurs as well as laymen. While investors should learn more about the company's product offerings, it may be interesting to see how the company fares in the equity markets, going into the future. Investors should also learn more about management as well as their plans for the company's future direction.

Smith & Wesson Holding Corporation is currently trading at about $2.97, down almost 21% for the year.

ACTION ITEMS:

Bullish View:
Traders who believe that Smith & Wesson is an appropriate long investment might want to consider the following trades:

• The company has one of the strongest brand names in general, and is certainly the most widely recognized name as far as firearm-related companies go.

• Its cash flow has been positive over the last five years, even during the 2008 recession. It has been able to turnover its inventory and alter its balance sheet to maintain its cash flow.

• Smith & Wesson's management team has made key decisions to comply with governmental regulations, allowing it to maximize its legal ability to sell its product.

Bearish:
Traders who believe that Smith & Wesson is more suited for a short play may consider an alternate position:

• Its management had to write down the effects of previous acquisitions, meaning that management may not be appropriately guiding the company in the right direction.

• Smith & Wesson is relying on debt financing to get by on a quarterly basis.

• The firm's financials have been very volatile over the last few years, and investors may not know if it will go up or down in the coming quarters.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Follow me on Twitter at @makinmarkets