It’s a “cash cow” or a “bubble” primed to burst. It’s a casualty of a dying retail sector or one of the nation’s fastest growing hobbies. Whoever you ask about the state of the firearms industry, a different answer is sure to follow.
Precise measurement of sales eludes analysis. The best proxy, federal background checks, appear to contradict expectations month to month.
As anticipated, applications submitted through the FBI’s National Instant Criminal Background Check System plunged by nearly 20 percent in January and February compared to 2016 — the industry’s biggest ever — in what market analysts and the media dubbed the “Trump slump.”
Likewise, stock prices for retail giants including Sturm, Ruger and American Outdoor Brands crashed. Headlines declared doom and gloom was settling in for a four-year stay.
The National Shooting Sports Foundation, however, held fast to its belief the industry’s long-term growth would endure. The National Rifle Association, too, dissected NICS data to show proof the crash was anything but — a strategy written off as a hapless, hopeless spin by liberal commentators.
In March, the NICS nosedive showed signs of stabilizing, with just a 3 percent decline overall. Estimated sales, however, posted 4 percent higher than the year before — an upward trend that grew more pronounced in April and May.
Stock prices rebounded. Retailers reported mixed first quarter results — confirming both a “Trump slump” and a bright future in the same breath.
“It is an exciting time to be a gun owner but a time of anxiety for being an investor in any security relating to firearms,” said Maks Financial Services in an analysis published by Seeking Alpha Wednesday. “Without the gun control stimuli, we see real evidence of a sales slowdown that, I believe, is just beginning.”
Maks cited an 8 percent decline overall NICS checks — which includes permit applications — as proof positive of its theory.
“Firearms manufacturers and distributors are in the middle of a pricing war with massive rebates and deep discounts on popular firearms that would not ordinarily need rebates,” the article continues. “If we are to believe that gun sales are to return to the Bush era, or to at least normalize at a 9 percent growth rate, we are still looking at least at a 22 percent drop in sales from where we ended 2016.”
It’s a drop that doesn’t account for the massive inventory lying around and the rise of online buying, Maks added.
“It is an opportune time to be a gun owner and a neighborhood gun dealer,” the article concludes. “But if you are an investor in a firearms manufacturer such as American Outdoor Brands, Vista Outdoor, Sturm, Ruger & Co., or a Big Box retailer like Dick’s Sporting Goods, Cabela’s or Big 5, Gander Mountain’s bankruptcy was your proverbial shot across the bow.”
Two days after Maks predictions, Seeking Alpha analyst Samuel Smith described the gun business as an enduring “cash cow” and recommended long-term investment in American Outdoor Brands.
Smith based his analysis on the predicted success of the company’s share buyback program, stabilizing NICS numbers and terrorist attacks abroad.
“Continuing terrorist attacks and social/political tensions have led to reports of increased concealed carry handgun sales … and first time gun-buyers,” he said in an article published Friday. “Renewed optimism for the firearms industry, management’s proven ability to under-promise and over-deliver on earnings performances, and its skill at profitably allocating retained earnings make this company a great candidate for long term investment.”
He further bolstered his claims with a quote from Justin Anderson, marketing director at Hyatt Guns, one of the largest gun retailers in the country.
“We are continuing to see brisk sales of self-defense and concealed carry firearms,” Anderson said. “We’re also continuing to see new gun buyers. People are nervous about their safety, and rightly so. It’s a dangerous world we live in and American citizens know that we’re not immune to terrorist attacks. They’re taking the necessary steps to defend themselves.”
He continued, “Frankly, the most recent terrorist attack in London underscores the importance of an armed populace. Remember that when seconds count the police are only minutes away.”
American Outdoor Brands plans to release its fourth quarter earnings and 2017 full financial results June 29. It’s uncertain whether the performance of the nation’s top handgun retailer will bring any clarity regarding the industry’s overall health.