Shares of gun makers like Smith & Wesson Holding CorporationSWHC and Sturm, Ruger & Co.RGR were down on Friday, Jun 3, after the FBI's National Instant Criminal Background Check System, or, NICS reported an almost 13% drop in firearm background checks in May compared to the prior month.
Overall, the FBI reported 1.87 million background checks in May, down 12.9% from 2.15 million in April. The reported number was also way below the first-quarter monthly numbers that were in the 2.5 million to 2.6 million range.
Smith & Wesson, which designs, manufactures and sells firearms, fell 7.09% on Friday. Meanwhile, Sturm, Ruger's shares were down 4.83%. Even Vista Outdoor Inc.VSTO suffered a decline of 2.41% that day.
It is important to note here that NICS is a U.S. method of finding out whether prospective buyers match the eligibility criteria to own firearms or explosives. Notably, NICS' data does not represent the number of firearms sold and hence a one-to-one correlation cannot be made between a firearm background check and a firearm sale owing to various state laws and purchase scenarios.
But still, some investors must have feared that gun makers might not be able to add sales that have otherwise been going strong in recent years.
Sturm, Ruger's first-quarter 2016 earnings surged 49.4% year over year on higher sales. Reported revenues were also up 26.4% in the quarter.
Meanwhile, Smith & Wesson's third-quarter fiscal 2016 earnings escalated 195% year over year on the back of impressive sales. Its top line increased 61.5% in the quarter with huge boosts in gross margins (up 750 basis points). The company is yet to report its fourth quarter and fiscal 2016 financial results which are slated for release on Jun 16 after the closing bell.
Gun control has been an important political issue following mass shootings that have gained such enormity in America. President Obama's stand on stricter firearm regulation has boosted gun and ammunition sales in the recent past.
But the crucial question is whether this gun sales surge -- spurred by the the fear of tighetning regulations -- will have a lasting effect. We will also have to keep a close watch on the pace of gun sales in the coming quarters to see if the upcoming presidential election will put the brakes on gun ownership.
Smith & Wesson, Sturm, Ruger and Vista Outdoor hold a Zacks Rank #3 (Hold). POOL Corp. POOL is a favorably ranked stock in the same space, carrying a Zacks Rank #2 (Buy).