The Death of the Gun Stocks, for Now

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The gun trade in stocks is over — at least for now. If you have followed the gun and ammunition demand in America over the past 15 months or so, you will know that there was nothing short of a frenzy for close to a year. Now it turns out that shortages have turned into surpluses, and there may be more guns on shelves than will be purchased. Ditto for ammunition.

Sturm, Ruger & Co. Inc. (NYSE: RGR) is the second leg of this story but it only confirms what the analysts on Wall Street missed. Tuesday night’s earnings of $1.33 per share were up from $1.00 a year ago, and revenue was up 28% to $141.8 million. That revenue bump was due to new products, and the consensus estimates were $1.38 in earnings per share and $179.1 million in revenue.

Ruger’s declaration of a $0.54 per share dividend did not help matters. This trade is over. Sturm, Ruger shares were down 9.3% at $62.00, already on almost twice as much trading volume as an average day, against a 52-week range of $44.76 to $85.93.

We noted that this was the second confirmation that the gun trade was dead. Cabela’s Inc. (NYSE: CAB) was the first confirmation that the gun trade was over. When it reported earnings, its stock fell to $64.26 from $69.81. Cabela’s CEO even said that the surge in guns and ammunition was clearly winding down. To prove a point — their firearms and ammo sales were said to be down 50% in just the first six weeks of 2014 versus a year ago.

Smith & Wesson Holding Corp. (NASDAQ: SWHC) almost certainly will confirm the same trend when it reports earnings on March 4. Smith & Wesson’s stock is down 4.8% at $11.73 in sympathy with Sturm, Ruger, and its 52-week range is $8.25 to $15.56. What is different about Smith & Wesson is that analysts are calling for only about 5% sales growth from a year ago.

The stock that has not yet fallen out of bed is Alliant Techsystems Inc. (NYSE: ATK). This is the largest maker of ammunition for military, law enforcement and to Joe Public. This company just went deeper into gun peripherals as well, with a scope and optics acquisition via Bushnell, and it acquired Savage also. ATK has ammunition brands such as Federal Premium, CCI, Fusion, Speer, Estate Cartridge and Blazer. ATK also already has accessories brands BLACKHAWK!, Alliant Powder, RCBS, Champion targets and shooting equipment, Gunslick Pro and Outers gun-care products, and Weaver optics and mounting systems. Just keep in mind that ATK is also into rockets and special munitions for the military. This stock was actually up 0.6% at $134.35 on Wednesday morning, against a 52-week range of $64.11 to $145.16.

Olin Corp. (NYSE: OLN) is the last of the gun trade, although Olin is even less of a pure-play than ATK. It owns Winchester for ammunition. Olin was up 0.4% to $26.10, against a 52-week range of $21.79 to $29.52.

If you are a regular visitor of gun stores, this should not be a shock. A bunch of Wall Street analysts missed this trend, probably because they cannot really visit gun stores too easily in New York and many of the surrounding areas. The issue here is that demand is not truly exponential through time — even though it can be explosive around regulatory fears and catalysts.

The gun trade will always be strong in America, as long as regulation is kept at bay. That does not mean that the trade in gun stocks has now played out. Sorry, that stock trade has played out until the next time.