After a weak start to 2017, stocks of firearm producers Sturm Ruger & Co. (ticker: RGR) and American Outdoor Brands Corp. (AOBC) have come on strong in the past couple of months as gun demand has picked up. FBI background check data from May suggests gun stocks may continue to hit the bull’s-eye throughout the rest of the year.
The FBI reported that the National Instant Criminal Background Check System processed more than 1.9 million firearm background checks last month, a new May record. Analysts and industry insiders use background checks as an indicator of firearm sales.
The FBI was regularly reporting record monthly background checks throughout most of 2016, but the gun market cooled off a bit after President Donald Trump was elected and Republicans maintained control of both houses of Congress. Gun buyers had been stockpiling firearms in anticipation of possible new gun control laws, but fears subsided after Trump’s victory.
Sturm Ruger and American Outdoor shares both sold off by more than 20 percent in the days following the election. However, signs that the firearm industry is stabilizing now have investors optimistic about the future.
“Current demand is likely bolstered by firearms pricing promotions as well as strong underlying demand from a growing participation base,” D.A. Davidson analyst Andrew Burns says in a report. Gun stock investors should be prepared for near-term volatility, but a steady, long-term growth trend should emerge by the end of the year, he says.
“Monthly data will likely remain volatile, especially during the seasonally light summer months when we lap the anniversary of the Orlando shooting and into the fall as we lap the 2016 presidential election,” Burns says.
D.A. Davidson maintains…
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