How the Second Amendment Affects These Companies
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Thomas Jefferson: "No Free Man Shall Ever Be Debarred the Use of Arms." What type of ammunition someone uses, what firearm they buy, and where they buy it, is completely up to them. As a result of the public shootings in the past year, many people, politicians, and even firearm companies want to ban/regulate firearms more heavily. The following companies either distribute or manufacture firearms and will be directly affected by the Second Amendment's debate and the results that follow.
Smith and Wesson (NASDAQ: SWHC) has been selling and manufacturing firearms since 1852 and will celebrate its thirteenth anniversary as a publicly traded company in May. Revenues increased 5% in 2012, but Smith and Wesson's stockholders received a much larger return. The stock soared 13% more in 2012 than the previous five years combined by growing 81%. The company's free cash flow (FCF) has risen over 30% in the trailing twelve months (TTM). Smith and Wesson and Sturm Ruger and Company (NYSE: RGR) are the two firearm companies not privately owned, which explains their dynamic competition.
Ruger has separated itself by virtue of its stock. Over the past five years, it has steadily grown over 500%, but just 30% in 2012. Bill Ruger founded the company in 1949. In 2000, Bill's son tried to follow in his father's footsteps, but it was too much to ask. Michael Fifer relieved Bill Ruger Jr. of his role within the company in 2006. Revenues for the company increased 29% in 2012 and have more than doubled in the past five years. So, who distributes these different firearms to the general public?
Cabela's (NYSE: CAB) boasts itself as "The World's Foremost Outfitter" and sells extensive amounts of both Ruger and Smith and Wesson products. Last year Cabela's experienced a revenue increase of nearly 6%, which put them over $2.8 billion in sales. Cabela's seems to be focusing on continued growth as its capital expenditures increased nearly 70%, leading in part to a 22% decrease in FCF. Last year Cabela's stock increased 78%, while over the past five years it has seen a 234% increase. Even with these remarkable figures, Cabela's still has two major competitors that are publicly traded.
Wal-Mart (NYSE: WMT) has begun to play a major role in sporting goods. In the Midwest, many of Wal-Mart's stores have begun selling firearms, an arena they didn't previously participate in. Because Wal-Mart attracts millions of people for different reasons, it makes them a major player in the firearms industry. Though Wal-Mart's revenue increase in 2012 is competitive with Smith and Wesson and Cabela's, up 5.45%, Wal-Mart's stock has not performed competitively with either manufacturer. While increasing a respectable 16% in 2012, its stock has only grown by 46% in the past five years. FCF has declined by 2.4% in 2012, yet their capital expenditures have increased by over 30%. Simply because of the variety of people that Wal-Mart attracts investors should expect it to leave its mark in the firearms industry as well.
Big 5 Sporting Goods (NASDAQ: BGFV) is the last major gun distributor that is not privately owned. Big 5 is different from the rest of these companies in one major way: The company does not sell any high-powered rifles or handguns, but primarily sells pellet guns and Airsoft Guns. This seems to affect their performance. Revenues remained level, while FCF and capital expenditures decreased 27% and 23% respectively. Last year, their stock soared over 36%, but has only gained 4% after 2008.
The Bottom Line...
The debate over firearms seems to have a major effect on companies in the firearm industry. All of these companies, except Ruger, have performed exponentially better since the firearm debate has accelerated in the past year. Throughout 2012 it seems there are public shootings almost weekly. This drives politicians to debate the need for gun bans/regulations.
I believe what we are seeing here is a perfect example of supply and demand. There is talk of guns being stripped from citizens, which means there is more demand for those firearms. This drives prices up, which leads to more profit for the companies distributing/manufacturing firearms. If this debate continues, or if regulations/bans are implemented, expect these companies to perform well. If more regulations are instituted, there would not be as many firearms sold, however the price of those that are would skyrocket. 2013 could be historic for the firearm industry.
tlwofford has no position in any stocks mentioned. The Motley Fool owns shares of Sturm, Ruger & Company. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!