Why Shares of Smith & Wesson Shot Higher Today

What happened

Shares of Smith & Wesson Brands (NASDAQ: SWBI) gained 8% on Monday and traded up more than 10% mid-day, following another strong month for the background checks needed to buy a firearm.

So what

The Federal Bureau of Investigation reported Monday that July checks performed by its National Instant Criminal Background Check System (NICS) rose 123% year over year, following a June 136% gain.

A handgun with bullets.

Image source: Getty Images.

Investors in firearm stocks went into 2020 expecting gains because sales typically spike ahead of presidential elections. But headlines concerning civil unrest and pandemic-related fears seem to be driving interest in firearms higher as well, creating increased demand.

Handgun interest came in especially strong. Those small guns make up nearly 80% of Smith & Wesson firearm sales, meaning the company should see substantial trickle-through benefits from the background data.

Now what

Shares of Smith & Wesson are now up 177% for the year, but the stock is still below where it traded in 2016. Given the frightening news headlines that have come out of 2020, and the prospects of tighter gun control in the future depending on the outlook for the U.S. election, I'd expect NICS data to continue to trend higher in the months to come.

SWBI Chart

SWBI data by YCharts

Firearms stocks come with a lot of baggage, and the industry tends to be highly cyclical. But for those who want to go along for the ride, it appears we are getting a strong election-year upcycle in 2020, and the momentum is not fading yet.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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