With the rise of the tea party one might expect gun sales to rise in parallel.
You would be wrong with that assessment and guilty of what some pundits claim is a gross simplification and stereotype of the grass roots movement.
Investors in gun stocks must be concerned. With Democrats in control of Washington the fear was that gun rights would be severely curtailed. That has not been the case.
For whatever reason, a boom in gun sales has simply failed to materialize.
That makes my recommendation of gun maker Smith & Wesson (NASDAQ: SWHC) as a Top Stock for 2010 a questionable call. So far this year the stock is down nearly 10%. That is well below the sideways trade of the overall market.
The latest nail in the coffin for gun sales was the company’s weak fiscal first quarter results.
In the period Smith & Wesson reported that it earned $6.2 million or 10 cents per share. That is 50% drop from the $12.4 million in earnings from the same period last year.
Analysts were looking for the company to post a profit of 11 cents per share. The miss and weak outlook caused shares to lose nearly 10% of its market value.
The bigger worry for investors was that the company forecasted 2nd quarter revenue to be approximately $100 million. The prior expectation was for revenue to hit $115 million.
Dealers are apparently reducing inventory due to weak sales. The company expects restocking to have a positive impact in the second half of the current fiscal year.
Whatever the reasons, guns are simply not selling as expected.
It would seem that the blame can be found in the weak economy. Of course a weak economy should be trumped by the emotional buyer worried about gun laws changing.
That simply is not happening, at least not at the moment.
Now with a mid-term election approaching and gains expected for the out of power party, the risk to gun rights advocates is decreasing. Investors should not expect politics to play a role in future sales.
I’ll ride my recommendation for the rest of the year. The rest of you might want to consider dumping this dog.
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