Aim Low, Shoot High
Andrew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On a day when the market seems to be depressed, gun investors are getting trigger happy. Shares of firearm manufacturers Smith and Wesson (NASDAQ: SWHC) and Sturm, Ruger & Company (NYSE: RGR) are both up 13.19% and 13.43% respectively. Smith and Wesson and Ruger are both experiencing stock price surges, and will likely to continue the current trend. Over the past 12 month, Smith and Wesson’s stock price is up almost a whopping 100% while Ruger is slacking, posting a 94% increase in stock price over the same 53 week period. The question is why?
At first glance, many investors may be tempted to have a negative outlook on both of these companies, with high TTM P/E ratios (Smith and Wesson is almost 119 earning!) it is easy to get caught up in past performance and think that it is indicative of future performance. That would be a bad mistake for the individual investor to get caught up in, and here is why.
America is arming itself to the teeth. Ruger has had to suspend new orders after taking orders of over 1 million guns in the first three months of 2012 alone. People are buying guns and ammo by quite literally by the truck load in anticipation of an election year that many individuals fear to tread on their Second Amendment rights. Gun enthusiasts fear that President Obama is heading for a reelection, after which could mean tighter restriction regarding ownership and possession of a firearm. The same fear was prevalent in 2008-2009 after Obama initially won the presidency. Smith and Wesson recorded revenue growth of over 13% in the year following Obama’s election, while Ruger managed an almost 50% increase in revenue over the same period.
The general state of the economy is also helping to drive sales of firearms. I wrote an article a while ago that detailed some companies that are well positioned to prosper from the general fear that doomsday is coming. Many people feel that the end of the world is a very real threat, and take protecting themselves very seriously. For further proof of this growing phenomenon, one would only have to look as far as their TV to watch the new shows Doomsday Bunkers and Doomsday Preppers.
Regardless of their motivations, Americans are purchasing and stockpiling firearms and ammo like there is no tomorrow. Companies like Smith and Wesson and Ruger are well positioned to capitalize on the feeding frenzy of gun ownership. If it’s true that history repeats itself, 2012 could prove to be a remarkable year for gun owners and investors alike, one way or another.
The Motley Fool has no positions in the stocks mentioned above. dillarda has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.