Gun stocks have risen dramatically since the announcement of President Obama’s executive action. Often, the best thing that can happen for the value of a product is for the government to crack down on its sales. So it comes as no surprise to many that gun manufacturing companies stocks have soared since Monday. Smith & Wesson (SWHC) stocks have jumped more than 10 percent in the aftermath of the announcement of President Barack Obama to close the gap on gun sale loopholes. Gun manufacturer Sturm, Ruger & Company went up 7 percent as of Jan. 5, according to Quartz. This is in anticipation of the trend that when gun owners feel the market tightening, they tend to buy more. Hence, shareholder reaction.
President Obama’s executive action on guns, after exhaustive efforts to work with congress, is meant to close the loopholes created by gun shows and private party sales. This is known as the “gun show loophole,” and will further regulate the purchasing of guns outside the realm of required background checks. Guns purchased between private parties do not require these, nor do they require the sellers to keep records of their sales.
Mr. Obama announced his executive action on Monday in an emotional speech that referenced the shootings at Columbine and Sandy Hook. He explained,
“…this is not a plot to take away everybody’s guns. You pass a background check, you can purchase a firearm.”
According to the new law, private or online sellers will be required to have a licence and face up to five years with $250,000 in fines for operating without one. It will disallow the use of “gun trusts,” or weapons that are passed from family member to family member without background checks. Two hundred thirty new members of the FBI will be brought into service to enforce background checks, and another 200 will be assigned to the ATF to enforce these regulations. Gun dealers will be required to report any and all missing firearms, and $500 million will be set aside to ensure firearms do not fall into the hands of individuals with mental illness.
CBS News reports that Smith & Wesson expects to finish off the quarter on January 21 at up to $180 million, with adjusted earnings going up from 39 cents to 41 cents a share. According to CBS, Smith & Wesson announced,
“the sell-through rate of its products at distribution has been stronger than originally anticipated, resulting in reduced distributor inventories of its firearms.”
Gun sales are doing so well that gun suppliers cannot keep up. Smith & Wesson, based in Springfield, Massachusetts, will clearly be profiting from the new regulations, so much so that it is already having trouble keeping up with the unprecedented number of sales. Shareholders obviously look for trends like these. But how long will this surge in gun purchasing last?
An analyst at Wunderlich Securities, Rommel Dionisio told MarketWatch,
“As the firearms industry has seen numerous times before, the threat of gun control legislation again appears to be driving near-term retail sales acceleration, as consumers rush to dealers to purchase firearms they believe may one day become unavailable.”
According to Dionisio, gun owners are uncertain as to what they will have the freedom to buy in the future in spite of the fact that the new legislation in no way bars ownership or future ownership. The new regulations will only require more thorough background checks for gun buyers and more responsibility for sellers.
But that hasn’t stopped fear from driving gun stocks before. Chris Krueger, an analyst at Lake Street Capital Markets, told New York Post,
“Based on the past multiple years, when gun control becomes a big political topic in the headlines, these stocks do well.”
Gun enthusiasts spend money, and shareholders make money.
(Photo: Joe Raedle/Getty Images)