Why Gun Stocks Shot Up
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of gun makers Smith &Wesson (NAS: SWHC) and Sturm, Ruger (NYS: RGR) were on target for investors today, gaining as much as 20% and 11%, respectively, after Smith & Wesson released fiscal-fourth-quarter results.
So what: For the quarter, Smith & Wesson's sales soared 28% to $130 million, while income from continuing operations per share fished at $0.27, up from $0.07 a year ago. Wall Street was expecting revenue and per-share profit of $129 million and $0.17, respectively. The company said that an expanding user base -- particularly among women -- as well as concerns about the upcoming election fueled the strong quarter.
While good times for Smith & Wesson don't guarantee similarly strong performance out of Sturm, Ruger, investors are probably right to be excited since the company can reasonably be expected to benefit from the same trends that Smith & Wesson has been seeing.
Now what: As we look ahead to the presidential elections at the end of the year, it's probably not crazy to think that another term for Barack Obama would be the better outcome for gun companies like Smith & Wesson and Strum, Ruger. To date, Obama has not cracked down on gun control the way many expected, but those expectations linger. Obviously, if President Obama were to take drastic steps during his second term, that would be a bad outcome, but even if that never came to pass, the expectation of it could continue to drive gun sales through the second four-year term. Perhaps a counterintuitive way to think about it, but it's hardly a far-fetched scenario.
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