2016 is on pace to be another record year for gun sales in the United States.

According to a recent report released by the FBI, gun sales hit a 17th consecutive monthly record in October, up 27% from the same period last year.

#-ad_banner-#This spike in demand is being driven by two powerful forces.

The first is crime. Although the national crime rate remains near 20-year lows, crime rates in major cities have spiked. For example, Chicago recently recorded its 600th murder in 2016, a number already 100% higher than that rate in 2015.

Demand for guns is also being driven by politics. Gun owners and potential buyers worry about stricter gun laws. This is pulling demand forward and prompting consumers to purchase firearms sooner rather than later.

Looking forward, I don’t expect either of these forces to fade away quickly — in fact, I am expecting gun sales to hit another monthly record in December and close the year at an all-time high.

That’s why it’s a great time to take a fresh look at one of the most undervalued growth stocks in the S&P 500. This global leader’s share price is up more than 145% in the last three years. The company is on pace to deliver record sales in 2016 and earnings are projected to grow another 35% in 2017.

Snag Big Potential Gains In 2017 And Beyond
Smith & Wesson (Nasdaq: SWHC) is a firearms manufacturer based in the United States. Since its founding in 1852, Smith & Wesson has grown into a global leader in firearm production.

Today, it supplies police departments, military forces, and recreationalists across the world.

Smith & Wesson has already been cashing in on the spike in demand for firearms. Revenue is up 114% and shares are up 144% in the past three years. Take a look below.

Despite these impressive gains, I am expecting current trends to continue through the end of the year and into 2017.

SWHC Is Expanding Into New Markets
Smith and Wesson is leveraging its industry dominance and strong brand recognition to expand into new markets.

On July 18, Smith and Wesson announced its intent to purchase Taylor Brands, an industry leader in knives and specialty tools. Then in August, Smith & Wesson announced it had completed the acquisition of Crimson Trace Corporation for $95 million. Crimson is an industry leader in laser sighting systems. 

These two acquisitions will expand Smith & Wesson’s product portfolio into new markets while also creating synergy with its existing offerings.

In conjunction with record demand for firearms, Smith & Wesson should deliver record sales and earnings in 2017. Wall Street analysts are projecting  115% growth in the fourth quarter of 2016 and another 35% in 2017.

This Is An Undervalued Stock In An Overvalued Market
Despite the promising outlook, Smith & Wesson is one of the most undervalued stocks in the U.S. stock market, with a P/E ratio of just 10.4 — a 44% discount to the S&P 500’s 18.

In a market where it’s hard to find value, Smith & Wesson stands out as an exceptional value play.

Risks to Consider: On September 26, Smith & Wesson announced that it had lost out on a bid for a supply contract with the U.S Army. Although I don’t expect the news to have a material impact on earnings growth, it does highlight the risk of losing multi-million dollar contracts with military and police.

Action to Take: Smith & Wesson is a market leader in a high-growth industry. Its recent acquisitions and the surging demand for guns should help Smith & Wesson deliver record revenue and earnings in 2017. Buy shares on the recent dip and hold for the long haul.

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