The same factors that blurred Sturm, Ruger (NYSE: RGR) In a three-year recession between 2017 and 2019, they are now behind what could be a tectonic shift that could last for several years.
Ruger’s shares are up 61.6% in the first six months of 2020, according to data provided by S&P Global Market Intelligence, and we are seeing the pressure of tidal forces rise in 2020. They can be unleashed with a thunderous roar. on the profits of the arms manufacturer. for many quarters to come.
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A year like no other
The so-called “Trump crash” of the arms industry that followed President Trump’s election to office is in the midst of a reversal, and the results are dramatic.
Newly released FBI data shows the federal law enforcement agency conducted criminal background investigations on a record 3.9 million Americans seeking to buy a gun in June, a 70% increase from last year and more than in any other time since the agency began tracking data in 1998.
This number is not a one-to-one relationship to arms sales, as it includes controls on hidden transport permit holders. An applicant may be denied, or a buyer may purchase more than one pistol. However, it still represents the general trend and mood of the market regarding firearm sales.
Background checks this year through the National Instant Criminal Background Check System (NICS) have increased 38% from the previous year, and it’s been three months since more than three million checks were performed. Three of the four months with the highest number of checks also occurred in 2020.
Politics and the economy are converging significantly this year, and that makes an investment in firearm manufacturers like Ruger and industry peers. Smith & Wesson Brands (NASDAQ: SWBI) particularly timely, even given the massive increase in value that these shares have already enjoyed to date.
Increased gun ownership
Smith & Wesson, whose shares have quadrupled in value since their March lows, announced earnings last month that hinted to investors how the next report is likely to unfold for Ruger.
Smith & Wesson said firearm sales increased 37% in its fiscal fourth quarter as federally licensed dealers and retailers tried to keep up with consumer demand. Distributors had intentionally maintained their inventories to avoid a repeat of the situation in 2016 when they stocked up on weapons and ammunition only to see the market crash.
The main driver has been a concern for personal safety. Riots have erupted across the country, leaving many Americans concerned about the health and well-being of their families and property, and are buying weapons at a record rate.
Smith & Wesson said FBI background checks for handgun purchases increased 66% in the quarter, while long gun background checks increased 48%.
Ruger is ready to roll
Sturm, Ruger was already seeing the surge in demand in his first-quarter earnings report when firearm sales increased 9% in a 37% increase in shipments to dealers, leading to the weapons maker. to increase production again while seeking to re-manufacture 500,000 firearms. quarter.
Because Ruger largely refrains from discounting the rest of the industry employed to increase sales during the recession, he has mostly been able to maintain his profit margins, even though he has seen them fall during the recession. the industry.
Now, with a presidential election later this year that could greatly influence the direction of the gun control debate, Ruger and Smith & Wesson will see even more demand to absorb any available inventory and strengthen profit margins.
In the growth objective
Ruger’s shares have not seen the same kind of gains as his peers, but the shares have doubled in the past three months. The reason why the gunman’s actions should still be considered a purchase: After November 2020, even if the elections don’t go against the interests of the industry, the same inflamed passions will still be present.
Although the fractured landscape is not healthy for the country, it creates an environment conducive to boosting arms sales that could continue to be high in the coming years.
