Increased efforts to control firearms are good for those who like guns.
Leaving aside that debate itself is a good thing, the very discussion spurs gun sales. That increases gun makers’ profits and leads to higher share prices. That’s why those who have invested in gun companies have spent the last several months seeing their portfolios increase in value. The over-the-top debate style of officials from the National Rifle Association and Gun Owners of America has served shareholders well.
Not much change
Let’s get this out of the way now: proposed legislation will not substantively change the availability of firearms to the general public. Increased background checks likely won’t even slow down the speed at which a person can buy a gun. Magazine limitations are the same, though there’s a greater likelihood of that being defeated in committee.
What it does do is make those who want to purchase guns more sensitized to that purchase. It increases the relative value placed on firearms and gets buyers to purchase sooner. Even before the current debate, sales of guns were steadily rising just on the election of President Obama, who many thought – due to industry marketing – would push for very tight gun control. Since the President’s first election in 2008, gun sales have jumped more than 50%, from an already high 4 million per year to more than 6 million in 2011.
Smiling and raging
For public relations purposes the gun industry needs to maintain an appearance of fierce vigilance about gun control. Honestly, I can’t blame them. Like the tobacco companies, there is a significant percentage of the political class who would like the sale of their products simply banned.
However, that vigilance is also tied to the knowledge that attempts to ban weapons leads to greater sales, profits and share values. A quick look at Sturm, Ruger and Company (NYSE:RGR) shows that in the last quarter its operating margin was 13.96%, and share prices since last June grew 44.24%. Since Obama took office in January 2009, shares have grown from $6.27 to $50.40. Last quarter, which didn’t include sales since the first of the year, exceeded earnings expectations by 18 cents, and there’s good reason to believe that trend will continue.
A similar look at Smith & Wesson Holding Corporation (NASDAQ:SWHC) shows a similar pattern. For the famous gun manufacturer, we see an operating margin of 12.85% for last quarter and share price growth since the June’s market bottom of 40.88%. Again, since January 2009, the share price has grown 278%. In addition, the company said last month that its earnings had tripled to 26 cents per share, up from 8 cents in the same quarter a year ago. I like Smith & Wesson Holding Corporation (NASDAQ:SWHC) because it has more room to grow and I can get more of it at a lower price.
Even gun manufacturers with a more military bent, such as Alliant Techsystems Inc. (NYSE:ATK), see better times during gun control debates. While the operating margin number isn’t quite as interesting at only 5.99% for the fourth quarter, share price growth has been good. Since last June, shares have increased from $45.47 to $73 – a growth of 60.54%. In addition, earnings have grown 32, both on increased sales and acquisitions. One warning though–because Alliant Techsystems Inc. (NYSE:ATK) does a lot more than just sell guns for consumers it’s shares don’t show the same long-term Obama Effect as the others do.
One left in the chamber
We can see that gun manufacturers can be good investments in general, and even better when the debate is raging. The gun lobby is one of the most effective in the United States and knows that its job is to promote debate while preventing an actual attempt to restrict the sale of firearms. Combine that with a strong gun ownership tradition and a sense of the importance of near-term buying by the public, and it’s good times for those who own shares in gun companies.
The article Gun Control Is Good for Gun Ownership originally appeared on Fool.com and is written by Nate Wooley.
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