TTAG’s already reported that the U.S. firearms industry may be looking at a serious glut. Their all-guns-blazing drive to capitalize on the post-Obama/CCW sales surge could make them victims of their own success; pushing down prices and cutting profits. According to marketwatch.com, Keybanc Capital Markets’ Scott Hamann doesn’t quite see it that way. He’s pessimistic for other reasons: “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.” In other words, demand will slow. And so . . .

KeyBanc subsequently cut its recommendation on Smith & Wesson to hold from buy. The stock fell 10% to $8.72.

Sturm Ruger was cut to underweight from hold and given a price target of $40 a share, $6 below where it’s trading midday Wednesday.

Bad news for shareholders, but a minor ding in comparison to their stocks’ recent rise. Year-on year, Smith’s revenue rose 28 percent (to $129.8m) in the fiscal fourth quarter. In its recently released second quarter report, Sturm Ruger’s reported revenue increased by 50 percent (to $119.6m).

Despite the aforementioned legal liberalization, making it easier for old and new gun buyers to obtain a permit to carry a concealed weapon, Scott Hamann thinks the party will soon be over.

While we believe the recent momentum in the [FBI’s National Instant Criminal Background Checks] has been impressive thus far in 2012 and accelerating since the April slowdown, we believe trends could potentially be near peak levels, particularly as we more closely approach the November presidential election and enter a period of more difficult comparisons.

I think Hamann’s hinting that a Romney victory would put the brakes on firearms sales, as politically-aware gun owners chill on the whole gun grabbing front. I reckon that’s not wrong, although concealed carry and gun culture 2.0 could take up the slack.

One thing’s for sure: if Obama does get reelected there will be another surge. There’s a strong feeling amongst firearms owners—promoted heavily by the NRA—that a second term Obama would be a president unchained, ready, willing and able to implement a gun control agenda via Executive Order.

I don’t see that happening but what do I know? Meanwhile, Rick Smith at The Motley Fool sees post-Aurora calls for gun control as an opportunity for investors, counseling his readers to BUY! Stocks, not guns (with or without stocks).

Four weapons in particular are likely to prove hot items for regulators and gun buyers alike: the Smith & Wesson M&P 15 semiautomatic rifle, Remington’s 870 12-gauge shotgun, and Glock’s .40 caliber handguns — the G22 and G23 in particular.

Savvy investors will notice right away that unlike Glock and Remington Arms, Smith & Wesson (SWHC) is a publicly traded stock — and it’s been flat since Aurora. Even three weeks after the news broke, there’s still plenty of time to buy it.

Whether or not Congress succeeds in “taking away your guns” isn’t the point here. The mere fact that they’re going to try gives investors a chance to profit.

No matter what the demand for guns, there’s only so much product the market can absorb. Our sources say supply and demand are due to catch up soon. We shall see.

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28 Responses to Gun Sales Set to Peak?

  1. i went gun shopping yesterday. found nothing i couldn’t live without . stock was low at the shops i went to. if we do get a glut and it drives prices down that’s a win win for me. if the makers and nra want to keep the surge going they’re going to have to put efforts into opening places like ca. ill. nyc. to shall issue. also a win win for me.

    • All you need to know about the coming election is contained in the following two facts:
      1) Obama is an incumbent president
      2) Obama has California & NY ‘locked’.

      Irrespective of personal politics, these will be nearly impossible hurdles for Romney to overcome.

  2. Glut ? .. many wish .. maybe in some states but here we can hardly keep certain things in stock. People are willing to pay a premium just to have it NOW !

    • Yep, same thing here in South Dakota, we can barely keep enough stock on hand to meet demand and everything from our suppliers is drying up or backorder only with no date on when they will be available. I’m still waiting on product I ordered in Feburary for customers.

      SD Shooters

  3. There’s also the problem with 8.2% of us being unemployed (or if you had the same number of people in the workforce as JAN 19, 2009 11.5% unemployment) and those of us lucky enough to have jobs haven’t had a raise in awhile, but gas prices, local property taxes, food, electricity, etc are all going up. I haven’t bought a new gun in over a year, not because I don’t want one, but because I don’t need another one, and right now given the state of the economy, I buy things I need, not things I want.

    • The unemployment rate is far higher than that, if your unemployed for 12 months, the government no longer counts you as unemployed, but rather “discouraged”. There are numerous other ways they game the numbers, technically it is at 41.6%.

      Both the civilian labor force participation rate, at 63.7 percent, and the employment-
      population ratio, at 58.4 percent, changed little in July. (See table A-1.)

      http://www.bls.gov/news.release/empsit.nr0.htm

      • Instead of focusing on the unemployment rate, people should be focusing on the employment rate. When you factor in the millions of government jobs (at all levels), isnt it amazing that about half of the country, 16 and older doesn’t work in the private sector, and is on some form of welfare (including government employment). If you were to factor in jobs that only still exist due to government bailouts, or massive subsides, or exists solely to service the government, the number of people employed in the private sector would be far less than 50%.

        • And also factor in the private sector employment that is around only because of the additional consumption of those on the various types of welfare.

  4. From my perch, I think he’s right to an extent.

    Thanks to Modern Warfare games and two overseas wars, guns have taken on a recreational role in some quarters. Hence the ‘Tactical” bubble of high speed low drag paper plates and kitchen utensils.

    Eventually ninja-mania will go into the dustbin of history like the Macarena and Fast & Furious (the movie , not Holder’s welfare program), while the core of serious shooters will support the businesses and brands with quality products.

  5. I think the biggest thing putting the growth of the gun industry at risk is high ammo prices. The bottom line is that shooting is a frickin expensive hobby these days, and that undoubtedly limits interest and sales.

    • …which is why the ‘tactical 22s’ have become fairly popular.

      I can shoot 22LR all afternoon for what it would cost to load a single 30-round mag with 5.56 NATO.

    • “I think the biggest thing putting the growth of the gun industry at risk is high ammo prices. The bottom line is that shooting is a frickin expensive hobby these days, and that undoubtedly limits interest and sales.”

      +1

      The other factor is that for many people, there aren’t a lot of places to shoot; at least none that are conveniently located.

      And many formal ranges seem designed to discourage shooters, especially new ones.

  6. Right now you go to LGS’s and they all have low stock. What ever they get in is either pre ordered or goes out pretty quickly.
    Full shelves would be nice, and I get the whole political thing, but I think if removal of laws and ideals change regarding guns and gun use in general then that will take up the slack for sure.

  7. I’ve been looking for a Ruger SR-22 pistol for a while now. No store I visit has one, and they tell me Ruger is backordered on most everything.

    Friends have been looking for M&P Shield pistols too, and can’t get one.

    I don’t think there’s any glut of firearms.

    • According to some of the other firearms blogs, two of the highest demand pistols, the Ruger SR1911 and the S&W Shield are still in short supply and “on allocation”, but are starting to show up in the stores.

      While my LGS and big box stores appear to have plenty of inventory, they are lacking what people are looking for.

  8. The gun market may be a mature but it’s not saturated. After more than 40 years of de-saturation since the GCA, market penetration now has plenty of pent-up upside. And unlike cell phone owners, hardly any gun owner stops buying at just one. Or stops buying, ever. Guns have almost the same churn rate as cigarettes.

    • And keep in mind, that “guns” per se will no be banned. It’s high-cap *mags* that will be banned.

      If nothing else, buy the high-cap mags for the guns you might someday want to buy, so that you’ll legally have the mags to support them.

  9. The sense that I got from skimming the article is that the analyst believes gun stocks are simply over-valued and over-bought and set for a correction which is different from the demand for gun sales.

    Market Watch? Funny guys. They’ve been predicting the gold price to drop year after year and the opposite has occurred. They’re a San Francisco based firm whose advertising clients are the big banksters/investment houses that thrive off a fiat (fake) FRN currency system and the manipulating of the American money system by the private banking cartel The Federal Reserve.

  10. My comment is being held back since it criticizes the financal medeea and the Fedurall Rezerve a private banccing cartul. It’s aul a conspuracee. The EEloominatii are everywhere taking over aul sites.

  11. Hey, that is an old pic of Double Action. The Glocks are at the other end of the counter now. And there is nowhere near that much stock right now. People are buying everything on the shelves.

  12. The biggest brake on the growth of the US firearms industry is a lack of manufacturing capacity. Ruger had to turn down months of orders just to catch up, and smith & Wesson is in no better shape. Since no new factories will be coming on line, neither Ruger nor Smith will see better volume. They won’t see better profits, either, since foreign-owned competition is so strong, which squeezes margins. My outlook on both Smith and Ruger is that their performance will stay the same or weaken in the next six months. That sounds bad, but if you bought either company two years ago, you’re very happy to be where you are right now.

  13. Don’t confuse stock prices with sales for this (or the next) quarter.

    Always remember these points about sell-side analysts in the stock market:

    1. They’re trying to anticipate two quarters ahead of time.

    2. They’re trying to sell a product – their analysis. Peddling the obvious doesn’t sell.

  14. Funny – I own Ruger stock and I am looking at my fidelity account. The nice thing about fidelity is you can see the accuracy of all of the top analysts. Funny this guy isn’t one of them. In fact, there are several recent reports among the most accurate analysts that reiterate their buy rating on ruger stock. Moreover, the overall consensus is “Bullish” (a 9.9 on a scale of 10). Thanks to this guy, I shall be buying more stock on the dip he created.

  15. With potential crisis heading toward us at great speed and 60% of the population gunless I don’t see demand slacking anytime soon. The debt crisis, the dollar as the world reserve currency, inflation looming, war between Iran and Israel creating oil prices of obsene levels, European countries in finacial collapse creating a domino effect, possible food shortages, electric grid near collapse, and a lawless POTUS and an out of control government, DHS buying over a billion rounds of hollow points of various calibers, are creating insecurity via possible civil unrest like we have seen in Europe. There was a 26% increase in month over month increase in NICS checks last month. Anyone whould say that is increasing demand.

  16. Well, my S&W collection is about to grow by 2 guns very shortly here. I guess Im going to contribute to the non-peaking of the sales.

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