Gunmaker Smith & Wesson Holding Corp. (NASDAQ: SWHC) has taken a sharp hit Wednesday following the election of Donald Trump as the next U.S. President. The company’s share price has more than tripled since President Obama took office and, had Hillary Clinton won on Tuesday, the share price would almost certainly have risen by as much as it has fallen today.
The theory is simple: Democratic politicians are more likely to curb gun and ammunition purchases than are Republicans. The U.S. Supreme Court ruling notwithstanding, U.S. Presidents have the ability to issue executive orders that can have a chilling, if not permanent, impact on gun sales.
Another consideration is that while gun ownership has risen since President Obama took office, the number of gun owners has dropped sharply since reaching a peak in 1994. More than half of U.S. households (53%) owned a gun in January 1994 compared with just 36% in June of this year.
A 2004 survey found that the average gun owner had 6.6 firearms; a poll in March of this year found that 1 in 5 gun owners owned 10 or mon guns.
Under a Republican administration with a Republican Congress behind him, demand for more guns is more than likely to decline.
Analysts at Wedbush have noted this effect on Smith & Wesson:
Although good for the long-term viability of the industry, we believe that the election results coupled with a Republican Congress and choice of Supreme Court justice(s) could be a net-negative for SWHC as it eliminates any realistic fear of gun regulation, which has been a major driver of gun sales over the past eight years.
Smith & Wesson stock traded down more than 15% in the early afternoon Wednesday at $24.12 in a 52-week range of $17.05 to $31.19. The consensus 12-month price target on the stock is $31.63.