President Obama’s reelection has triggered a big rally for gun stocks like Smith & Wesson Holding Corporation (NASDAQ: SWHC) and Sturm, Ruger & Company (NYSE: RGR) as no doubt many Americans are afraid of more restrictions on gun ownership but will gun stocks eventually shoot investors? That’s a hard question to answer right now because we don't know what will happen over the next four year. However, I should mention that a relative of mine has just bought a gun and not necessarily because she is afraid that Obama will ban them. What she is afraid of is the rising level of crime in her area as neighborhoods of foreclosed homes turn in to neighborhoods of empty homes or homes occupied by renters (or squatters) rather than homeowners. Since that is a trend that will likely continue, Americans, even those who aren’t bitter, will want to clink to their guns and probably buy more of them - one way or another. Sure, I know that violent crime statistics in may parts of the country are supposedly down or falling, but I’d be surprised if the safety perceptions of Americans is rising and its perception that counts. So should you get in or stay in gun stocks like Smith & Wesson Holding Corporation and Sturm, Ruger & Company?
To begin with Smith & Wesson Holding Corporation (NASDAQ: SWHC), its a US based leader in firearm design and manufacturing with a broad portfolio of quality firearms, related products and training for the global military, law enforcement and consumer markets. On Monday, Smith & Wesson Holding Corporation rose 4.09% to $10.68 (SWHC has a 52 week trading range of $2.72 to $11.24 a share) for a market cap of $699.52 million plus the stock is up 18.3% since November 6th, up 144.9% since the start of the year and down 4.47%. According to Yahoo! Finance, Smith & Wesson Holding Corporation has a trailing P/E of 21.84 but its forward P/E is only 12.00. Smith & Wesson Holding Corporation will next report earnings on December 5th and what investors will need to pay attention too besides any miss from Wall Street’s no doubt lofty expectations would be its backlog of orders and profit margins as the last time SWHC reported earnings, it reported a backlog rise of 164% to $392 million along with a gross margin rise from 28.9% to 37.7%. However, Smith & Wesson Holding Corporation does not pay a dividend.
Finally, Sturm, Ruger & Company (NYSE: RGR) is one of the nation's leading manufacturers of high-quality firearms for the commercial sporting market with over 400 variations of more than 30 product lines. On Monday, Sturm, Ruger & Company rose 3.57% to $51.08 (RGR has a 52 week trading range of $29.11 to $58.42 a share) for a market cap of $978.70 million plus the stock is up 13.1% since the elections ended, up 52.7% since the start of the year and up 537.7% over the past five years. According to Yahoo! Finance, Sturm, Ruger & Company has a trailing P/E of 16.37 with no forward P/E given. At the end of October, Sturm, Ruger & Company reported that net sales had risen from $80.5 million to $118.2 million last quarter while EPS came in at 88 cents verses 56 cents. Sturm, Ruger & Company also reported that demand for its products outpaced the growth of overall gun industry demand as measured by the National Instant Criminal Background Check System (“NICS”) background checks. In fact, Sturm, Ruger & Company was so overwhelmed with demand that it was forced to halt acceptance of new orders from mid-March to May 29. Otherwise, investors should note that Sturm, Ruger & Company has a forward dividend of $1.53 for a dividend yield of 3.10% – enough to buy at least a few rounds of ammo.
The Bottom Line. The sharp rise of gun stocks Smith & Wesson Holding Corporation and Sturm, Ruger & Company over the past week should discourage new investors from jumping right in but joining the bandwagon but if you have been invested in these gun stocks for some time, either hang tight or consider cashing some of your profits out before President Obama raises your capital gains taxes!