Stock markets around the world closed down on the last trading day of 2015, with the Dow suffering its first annual drop since 2008. But for the two largest stock market-listed gun manufacturers 2015 has been another great year – their value has doubled.
In a year marred with gun violence and peppered with calls for tougher gun control measures, Smith & Wesson and Sturm, Ruger and Company have been two of the best performing stocks in the US.
Over the year Smith & Wesson rose from $9.47 to $21.98. Sturm, Ruger and Company rose from $34.63 to $59.61. It’s not just 2015 that has been good for gun stocks. Over the past five years, stocks of Smith & Wesson increased in value sixfold while stocks of Sturm, Ruger and Company quadrupled in value.
By comparison, Apple stock remained almost unchanged over the past year and only doubled in value over the past five years, reaching about $105 a share this year compared with $46 in 2010.
Netflix, which has been named as one of the best performing stocks of 2015, performed as well as the US gun companies – more than doubling in value over the past 12 months and growing by 464% over the past five years, reaching $114 a share on Thursday compared with $25 in 2010.
Even as Smith & Wesson stock reached a record high share price earlier this month at $23.45, analysts say it is likely to go higher still in the coming months. Chris Krueger, a senior research analyst with Lake Street Capital Markets, puts Smith & Wesson’s price target at $27.
Sturm, Ruger & Company reached a record high in January 2014 at $80 a share.
Investors have a reason to be optimistic about the future of gun stocks. This past Black Friday saw a record number of background checks for gun sales. The 185,345 checks do not necessarily translate into sales, as not all checks result in a sale and multiple firearms can be bought with a single background check. However, manufacturers rely on the background checks to measure how the market is doing.
This November, the FBI ran 2.2m background checks for firearms. That’s 24% more than last year.
On a conference call with analyst following the 8 December earnings report, Smith & Wesson’s president and CEO, James Debney, mentioned Black Friday numbers four times. He called the numbers “particularly encouraging”.
“The consumer is out there, shopping for firearms, perhaps a little bit more strongly than we anticipated. So certainly, that’s a factor in our thinking going forward as well,” said Debney, referring to the Black Friday sales.
Gun shop owners across the country have been reporting that the demand for guns has remained strong well into December as Americans sought to buy firearms as Christmas presents . Debney stressed that gun manufacturers have to be flexible in order to meet the increased demand for guns during such times. According to Krueger, that is one of the short-term challenges facing Smith & Wesson: keeping up with the demand if sales are elevated.
Krueger pointed out that according to adjusted FBI background checks, “the industry’s strongest year was 2013, largely driven by strong sales in the first half of the year. This occurred when gun control became a large, political topic and when there were attempts to pass new laws restricting certain firearms products.”
Earlier this year, when the former secretary of state and presidential candidate Hillary Clinton called for tougher gun control laws, Smith & Wesson stocks surged by more than 7% .
In 2015, the gun market conditions returned to normal, “where growth is in the mid to high single digits”, said Krueger. “However, there has been an uptick in recent weeks following the terrorist activity in Paris and San Bernardino, as people want the ability to defend themselves if they are ever caught in one of these situations.”
While many would attribute the spike in demand for guns to a renewed push for gun control, analysts say there is more to the current market dynamic than that. The main reason why people are buying guns is fear and a desire to be able to defend themselves, they say.
“I think many people in the media are wrong about why there has been a surge in firearms purchases in recent weeks. The news articles are mostly attributing it to fears that new gun laws will be passed and that consumers are making purchases while it is legal. I believe that this occurred after Newtown, but that this time people are making purchases because they feel the need to defend themselves,” said Krueger. “I have had multiple conversations with gun buyers and this has been the consistent message. None seem too concerned about new laws.”
Fear – especially of Muslims and of African Americans protesters – is contributing to the demand in the market, Brian Ruttenbur, an analyst with financial services firm BB&T, told the Guardian earlier this month.
“There’s a lot of fear right now of violence with everything going on in anti-Muslim movements and anti-black movements,” he said. “There’s this white fear going on – [people think] ‘It’s an unsafe world, and I need to be armed.’”
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