Investors may wish to invest in this area that is currently experiencing growth, but they must also be strategic about how long they keep their money in this industry.
After 12 months of continued demand for guns that triggered more background checks, there was a sudden spike in May when there were 75% more background checks, according to Lake Street Capital Markets LLC. This recent demand is projected to continue, causing the value of US gun stocks to increase during a time when most stocks are declining or remaining stagnant in value. Here is what you need to know about this potential investment.
Recent Gun Purchasing Trends
Although growth has been continuing over the last year, two major situations correlated to spikes in the demand for guns. The first was the COVID-19 pandemic. Financial analysts said that fears about the pandemic and resulting consequences led to more purchases of guns, starting back in March 2020. More than 3.7 million total firearm background checks were run through the FBI background check system in accordance with gun laws in the USA. That number represented the highest number of background checks in 20 years at the time with approximately 2.4 million of these believed to be related to gun purchases. This represented an 80% increase over the number of checks in March 2019. Gun store owners have noticed an increased demand for these weapons. Ammo.com, an online ammunition website, reported a 602% increase in revenue since the pandemic. Although some in-person sessions had to be cancelled due to the pandemic, the International Firearm Specialist Academy website reported a 50% increase in demand for their online gun safety training courses. Some owners report anecdotes that some of the sales are from first-time buyers who are panic buying. However buying a gun is a very big responsibility and it’s safe storage can be a huge problem, too.
Analysts also say that the increase was also partially due to this particular commodity being widely manufactured and distributed in the United States, particularly important during a time involving ongoing trade wars with China and having more stringent guidelines regarding imports. Analysts opine that the demand may wane in the coming months as fears regarding the coronavirus subside. However, one report says that the coronavirus pandemic may continue for another two years.
The New York Times reported that about 2 million guns were purchased in March 2020 during the pandemic. Many purchasers believed that civil unrest may happen and wanted to be protected in case that happened. They were right, but for different reasons.
Gun Stocks Rallying Amid Protests
Besides the pandemic, the next big surge correlated to protests that started throughout many major U.S. cities after the death of George Floyd that occurred on May 25, 2020, Memorial Day. By Monday June 1, 2020, Smith & Wesson’s stock jumped 15.1%. Alabama media outlets reported an increase in gun sales after peaceful protests occurred throughout the state. Similar reports were also made in Los Angeles.
The federal government’s administrative branch may also be spurring additional demand for guns with then President Donald Trump tweeting that he would deploy the U.S. military to stop the “riots and lawlessness.” Many people on social media shortly thereafter made comments about it being “time to buy a gun” in response to the president’s comments. These circumstances may have contributed to the firearm sales being 78% higher during the last week of May than during the same time last year.
7 Stocks that Won from This Situation
Several gun stocks and sporting goods’ stocks have experienced an increase in their stock value over the last several months. This ultimately led to a new index called the “Guns & Ammo 7” being established and tracked, which consists of the largest public companies that deal in guns and ammo. At the time of publication, this index is performing better than high-tech companies. The stocks that are part of this index include:
· American Outdoor Brands (the parent company of Smith & Wesson)
· Vista Outdoor
· Sturm, Ruger & Co.
· Olin Corp.
· Sportsman’s Warehouse Holdings, Inc.
· Big 5 Sporting Goods Corp.
· Axon Enterprise, Inc.
The index has added $1.98 billion to its overall market cap since May 30, 2020. Other companies that deal in guns and ammunition besides those in this index have also reported growth.
Investor interest shortly followed the FBI report regarding the large number of background checks its system processed.
During an economic downturn and volatile situation, it can be difficult to find an investment that provides favorable rates of return while being relatively safe. The gun and ammunition stocks of many large players in this industry are currently realizing significant gains in their stock value, but this may not last forever and is impacted by external factors like the virus, how the virus affects people, protests, and the results of the presidential election. Therefore, investors may wish to invest in this area that is currently experiencing growth, but they must also be strategic about how long they keep their money in this industry.