Smith & Wesson (NYSE:SWHC) shares fell 28% today hitting a new 52-week low after the company announced that its gun inventories were building up substantially as lower retail traffic caused a slow-down beginning in October. Many are attributing this slow-down to a drop in the U.S. crime rate, which fell as a percentage of the population from 2001 to 2006. Shareholders are clearly concerned that such trends may hurt the business in the future.

Smith & Wesson reported net product sales of $70.8 million for the quarter - an increase of 39.4% over the comparable quarter last year. Meanwhile, net income came in at $2.9 million, or $0.07 per share, which was $87,000 higher than the comparable quarter last year. The stock dropped on troubling comments that several manufacturers were forced to lower their prices on both long guns and hand guns in response as competition grows more fierce.

In the end, this is bad news for Smith & Wesson as well as other gun manufacturers that rely on a combination of hunting, protection and crime to drive their earnings growth. Combined, these factors make SWHC a stock worth watching!

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