Record-breaking gun sales have propelled the stocks of American manufacturers Sturm, Ruger, & Co. and Smith & Wesson to unforeseen heights. On August 15, Ruger produced its one-millionth gun of the year (it also produced 1 million guns in 2011). Sales have so boomed that for a period of 2012 Ruger actually had to suspend accepting new orders.
Smith & Wesson has also had trouble meeting the demand for guns. Earlier this year its backlog of orders totaled nearly $200 million, more than double the amount from one year ago.
Some believe the surge in gun sales will continue for the foreseeable future; others, including financial analyst Scott Hamann of Keybanc Capital Markets, say the firearms market cannot sustain the current rate of sales. Smith & Wesson stock is up a whopping 210 percent over last year, while Ruger stocks are up an impressive 60 percent. However, Hamann says these numbers are misleading, because neither company can maintain the current sales pace.
“Given the significant outperformance of the industry compared to the broader market, coupled with what we believe to be close to peak near-term retail demand trends, we believe further upside in the stocks could be limited and the risk/reward dynamic is no longer compelling,” he wrote in a research note.
Last month Hamann downgraded both stocks. However, not everyone agrees that the firearms market has only temporarily expanded.
When gun sales took off after the 2008 election, many assumed it was largely due to fears that the new administration would impose gun control. Most analysts at that time predicted the firearms boom would be over by now, but sales remain strong. As of mid-August, Americans had purchased 10.2 million guns in 2012, a record-breaking figure that’s 20 percent higher than 2011. So, while some say the current surge is merely another “Obama Bounce” due to fears over the looming election, others believe the firearms market has grown permanently larger.
“We think there is broader drivers, broader acceptance of the use of guns and more target shooting,” Cai Von Rumohr, an analyst with Cowen & Co., said in an interview on CNBC. “So we think it’s more than just safety and more than just fear of not being able to buy guns.”
Echoing that opinion, Smith & Wesson CEO James Debney says the current U.S. firearms market is a “much stronger installed user base.” In other words, there are more gun owners and they’re buying more guns.
How do you explain the gun sales boom? Is it over election fears; increased interest in self-defense; a renewed love for the shooting sports; or other factors? Let us know in the comments section.