As firearms sales surge, should investors be buying gun stocks? The past few months have been a boon for the gun and ammunition industry.
First, the novel coronavirus. The pandemic drove gun sales for many reasons, including fears of economic disruption spiking crime rates.The fact gun stores were considered “essential businesses” helped as well.
To top it all off, this fall’s U.S. Presidential election could fuel more gun sales before (and after) election day. How so?
With Democratic Party nominee Joe Biden now the favorite, and the Democratic party also favored to sweep both houses of Congress, there could be some drastic changes to American firearms policy in the coming years.
Put it all together, and it’s no wonder June 2020 gun sales jumped 145% compared to last year, or why gun stocks have performed so well these past few months.
So what’s the way to play this trend? Taking a look at major publicly-traded names in this industry, here are five gun stocks to buy with heavy benefits from rising firearm sales:
- Big 5 Sporting Goods (NASDAQ:BGFV)
- Sturm Ruger (NYSE:RGR)
- Sportsman’s Warehouse (NASDAQ:SPWH)
- Smith & Wesson (NASDAQ:SWBI)
- Vista Outdoor (NYSE:VSTO)
Granted, there’s some risk recent trends could turn on a dime. While now the underdog, if President Donald Trump secures reelection this November, shares in firearms and ammo companies could plummet again, like they did after the 2016 election.
Yet with economic uncertainty, fears of a decreased law enforcement, and other factors driving demand, there’s plenty left on the table.
Gun Stocks to Buy Before Election Day: Big 5 Sporting Goods (BGFV)
Obviously, manufacturers of firearms are most relevant gun stocks out there. But there’s ample opportunity with adjacent industries, including sporting goods stores.
BGFV stock isn’t as much a play on gun sales as say, Sportsman’s Warehouse (more below). But with its stores selling long-guns (rifles) and ammunition, you can easily see how the firearms boom could bolster sales.
Preliminary quarterly results are already showing this could be the case. Shares are already up more than four-fold off their pandemic lows. Ounces of improvement can really move the needle for this stock.
Simply put, Big 5’s heavy debt is a doubled-edged sword. Late last year, InvestorPlace’s Luke Lango listed the company as one of many retailers on the verge of bankruptcy. But now? If rising firearms and ammunition sales improve performance, shares may climb back to their 52-week highs (around $4.14 per share) or even higher. Keep in mind this stock traded in the double-digits just a few years back.
Granted, this is a high-risk, high-return opportunity. Don’t go hog wild buying BGFV stock. But, all things considered, there’s good reason why shares could head higher.
Sturm Ruger (RGR)
This firearms maker may be considered the “other gun stock” (besides the more-famous Smith & Wesson). But don’t ignore the potential of RGR stock.
Firstly, Ruger is a direct play on rising handgun sales. Rifles made up a larger share of sales than handguns in prior years. But with handgun sales making up the bulk of the sales increase, expect this segment to be the company’s largest this year.
Secondly, the company has little debt on its balance sheet, and plenty of cash. Coupled with today’s windfall, the company has the capacity to bulk up via acquisitions. There are many privately-held U.S.-based gun makers (Colt, Remington, Springfield Armory) they could buy out and bolt onto existing operations.
Put it all together, and there’s plenty of reason why shares could head even higher. Sure, the stock currently trades at levels unseen since the Obama years, when fears of increased gun regulation spurred sales. And shares could take a big dive if President Trump manages to beat the odds and win a second term. But for now, there’s plenty to back up the bull case for RGR stock.
Sportsman’s Warehouse (SPWH)
After Big 5, this is the second firearms retailer on our list. But while firearms make up just a part of that sporting goods chain’s business, SPWH stock is a more direct play on rising gun and ammunition sales.
As this commentator recently noted, overall sales grew 41.8% from the prior years’ quarter. Granted, much of this was due to acquisitions and new store openings. But same stores sales were up 28.6% over the same period.
With these strong results, it makes sense shares have rallied 245.8% in the past twelve months. Yet, as shares trade close to 52-week highs, is it too late to jump into this stock?
Yes and no. On one hand, SPWH stock now trades at levels last seen during the last gun boom. In other words, there’s major downside risk if the recent run-up in gun and ammo sales takes a breather later this year.
However, like with Ruger, current trends remain this company’s friend. Don’t bet against them, but consider shares a strong buy if they pull back from today’s “too hot to touch” prices.
Smith and Wesson (SWBI)
The most well-known publicly-traded firearms company, no list of gun stocks would be complete without it. And, while rivals like Ruger may offer a stronger balance sheet, more volatile SWBI stock may offer a faster path to fast gains as gun and ammo sales take off like a rocket.
With shares now trading around $22 per share, the stock is up nearly four-fold from where it was at the start of the pandemic.
The question now is, “will shares head even higher?” Like with Ruger, today’s trends are this company’s friend, but November’s election could make or break the stock.
However, considering shares trade at a lower forward price-to-earnings (P/E) ratio (13.8) than Ruger (18.8), there’s plenty of room for shares to climb higher in the coming months.
Also, per recent analysis from Lake Street Research, the company’s proposed spinoff of its Outdoor Accessories (non-firearms) unit could held move the needle as well. In short, plenty of reason why shares remain a strong buy, even at today’s “too hot to touch” prices.
Vista Outdoor (VSTO)
In years past, many have been burned with this ammunition manufacturer. VSTO stock has fallen more than two-thirds in the past five years. Of course, the increase in gun sales means ammo sales are spiking as well.
As our own Louis Navellier wrote June 22, the company holds a strong position in the ammunition sector. With this in mind, you can see how the company’s sales could head back to levels last seen in FY17 (sending March 2017), when sales were $2.5 billion (sales for FY20 only totaled $1.7 billion).
That spells big opportunity for shares to rally even higher from here (currently trading around $15 per share).
That’s not to say VSTO stock will hit price levels last seen a few years back (well over $30 per share). But given that this ammo maker’s shares haven’t rallied as much as the direct firearms plays, there could be more ample opportunity with this name.
Granted, this fall’s election again makes this a high-risk, high-opportunity proposition. Yet recent trends may mean the odds are in your favor with this stock as well.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.