See, while there are always stragglers, anybody who wanted to buy a gun based on their fear of a lack of availability in the future has likely already purchased all the firearms they care to own. In other words, the next round of fear mustered by proposed gun-regulation laws isn’t likely to boost gun sales the way it did in 2013.
That sentiment is largely reflected in the earnings outlooks for the market’s two biggest gunmakers. Next year’s income per share of RGR stock is projected to fall from 2013 $5.59 to $4.20 per share. Earnings for SWHC stock are projected to fall by 6% over the course of the next four quarters.
It’s not apt to be your garden-variety case of sandbagging just so these companies can emerge from their earnings announcements looking like heroes, either; interest in gun purchases is falling fast. Aside from the 10% year-over-year dip in November’s requests for gun-related background checks, sporting good retailer Cabela’s (CAB) reported in October that ammunition and gun sales began to fall as early as August.
And, considering there are 88.8 guns in this country for every 100 people living in the United States (an estimated 30% of U.S. households have at least one gun in them), it wouldn’t be out of line for investors to start asking if the market is saturated to the point where any growth in gun sales is going to be difficult to muster from here.
To be clear, even though the pace of gun sales is apt to slow for the foreseeable future, it’s not as if Sturm, Ruger or Smith & Wesson won’t find some sort of market for its products for years to come. It’s a question of pace; 2012 and early 2013 was an unusually strong gun-buying period, largely for temporary political reasons.
The thing is, for current or prospective investors in SWHC stock or RGR stock, a weakening sales-growth pace is still likely to have the same detrimental effect as an outright dip in revenue or income. To investors, most things are relative.
Those seeking to capitalize on the now-waning firearm craze may be better off looking at ammunition makers like Olin Corporation (OLN). It got its own mania-driven sales bump in Q3, as owners of newly-purchased guns stocked up on bullets. But, at least there’s relatively stable recurring revenue in the ammo business, assuming all these recent gun buyers make occasional visits to the shooting range.
The gunmakers themselves are little more than a coin toss at this point.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.