A fellow investor once tweeted to me, “Guns and prisons all day.” While it sounds like a bumper sticker in Alabama, it was a reference to stocks. The latter might not be as bulletproof a thesis as it once was, given that there is evidence that U.S. prison populations are declining, but the former is still right on target. Gun stocks seem to thrive in two polar scenarios: when there is fear guns are going away, and when it looks like guns are here to stay. The most recent example is Smith & Wesson Holding Corporation (NASDAQ:SWHC), which hit record sales amid fierce gun control debates in Washington.
For Smith & Wesson Holding Corporation (NASDAQ:SWHC)’s fiscal fourth quarter, the company came in slightly ahead of Wall Street’s expectations on both top-line revenues, and bottom-line earnings. Top-line sales hit $178.7 million — a record for the company, and about $2.1 million ahead of consensus estimates. The number also represents a 38% gain over the prior year’s quarter.
On the bottom line, non-GAAP EPS came in at $0.44 per share — 63% higher than 2012’s fourth quarter, and $0.01 over analyst expectations. Margins improved across the board.
The gunmaker booked its sales boom based on a now-familiar thesis: People buy (lots) of guns when they are worried that they are going to be taken away. Even though the final version of the once-strict gun control bill passed with little effect on the average gun owner, the discussion leading up to it was enough to scare people into the gun stores, arming up Charlton Heston style.
The perfect stock?
Despite frequent outcries for change, America’s love of guns seems to persevere. According to a recent report, it’s not that more and more Americans are choosing to become gun owners, but that existing gun owners are just buying more guns. Aside from becoming the most popular house in the neighborhood in the event of a zombie apocalypse, these buyers are the perfect customer for companies like Smith & Wesson Holding Corporation (NASDAQ:SWHC), or Sturm, Ruger & Company (NYSE:RGR). They are constantly worried that the government will nix access to handguns and automatic weapons, and panic-buy as many as they can.
Since the beginning of Obama’s first term, Sturm, Ruger & Company (NYSE:RGR)’s stock has gone absolutely bananas — up more than 700%. Smith & Wesson Holding Corporation (NASDAQ:SWHC) is up more than 400%, though with more volatility.