According to projections, sales of firearms in the United States are likely to hit an all-time high in 2021.
If you are considering purchasing stock in firms that make firearms or outdoor equipment, you must research the company beforehand.
There are a number of firms that can provide you with the materials you need for self-defense, leisure shooting, or hunting.
What are gun stocks?
Gun stocks are stocks issued by companies that produce and sell firearms and ammunition, such as guns and pistols. In the United States, there are very few publicly traded gun companies. Only two firearms manufacturers are listed on the US stock market, while a few additional gun stocks are those of firearms dealers.
After Donald Trump was elected President of the United States, gun stocks fell, resulting in gun ownership prohibitions. However, after almost two years of declining sales of guns and firearms, gun stocks have resumed their upward trajectory and are doing well.
Globally, gun sales are increasing, at least in nations where gun ownership is neither prohibited nor severely regulated. A Brazilian firearms manufacturer, Taurus reported record production levels in the first nine months of 2020 at both its Georgia, United States, and Brazilian plants. Year over year, sales volumes increased 28 percent to 1.29 million firearms, generating record revenue and profit.
Glock likewise sees a significant boost in sales. The Guardian reported last summer that the Austrian gunmaker's shipments to Brazil increased by more than 377 percent in the first six months of the year, accounting for 31% of all guns sold in the nation.
Nonetheless, the United States continues to be the dominant market for firearms, with the FBI conducting roughly 40 million criminal background checks on prospective gun purchasers every year. Even after excluding duplicate checks on existing concealed carry weapons permit holders – which the National Shooting Sports Foundation (NSSF) does to more accurately gauge consumer demand – there were more than 21 million background checks conducted, up 60% from 2019 and 34% from 2016, the previous year on record.
According to the NSSF, approximately 8.4 million individuals purchased a gun for the first time last year, accounting for about 40% of all gun purchases in 2020, with new demographics such as women and minorities accounting for significant shares.
Why have gun stocks performed so well in recent years?
As the nation's list of major shootings got longer, hopes mounted that Washington would make gun ownership more difficult. Fear was especially high among gun owners during Barack Obama's presidency.
In a February conference call with Sturm Ruger executives to discuss the company's quarterly profits, one investor said that "you've never had a better administration for the gun business than Obama."
Analysts believe the greatest predictor of gun sales throughout the industry is the number of firearm background checks reported each month by the Federal Bureau of Investigation. The number of checks issued more than quadrupled during Obama's administration, reaching 27.5 million in 2016.
And some of the most significant sales increases happened in the aftermath of high-profile killings. For example, in the month after the 2012 school tragedy in Newtown, Connecticut, the number of background checks increased by 81% year over year.
This aided in the growth of gun manufacturers' earnings — and stock prices. Over the course of Obama's administration, American Outdoor Brands increased 721.6 percent, almost quadrupling the gain of the Standard & Poor's 500 indexes.
How Should I Select the Best Gun Stocks for My Portfolio?
Despite the recent surge in sales, some investors are wary about investing in gun stocks. Additionally, improved background checks and the notion of socially responsible investing contribute to this unease.
That being said, if you're ready to buy gun stocks for your portfolio, there are a few different approaches to choosing the top companies in this sector.
This section discusses how to choose the best gun stocks for your financial situation.
Market Capitalization
Investors may use market capitalization to determine if a company's value is worth evaluating.
If you examine the companies described before, you will see that the majority of them are small-cap stocks, with a market capitalization of between $500 million and $3 billion at the time of writing.
Olin is the one exception since it makes ammunition rather than firearms.
Nonetheless, the primary benefit of investing in small-cap companies is the possibility of large upside development.
Generally, small-cap companies expand at a higher pace than their large-cap counterparts.
Additionally, investors seeking to diversify their portfolios with a range of market values might opt to buy gun stocks with a small or medium market size to mitigate investment risk.
Earnings Increase
If you're investing in gun stocks as part of a growth plan, you may also buy a firm based on its income level.
For example, Vista Outdoors reported a nearly 50% rise in net income year over year in the fourth quarter of 2021. Then there's Axon, which announced a year-over-year increase in net income of over 5,000 percent in Q3 2021.
These high growth rates are desirable, but they are often indicative of the gun manufacturer's great future prospects. Examining a company's financial statements will also provide information on the company's total revenue, capital assets, cash flow, and debt levels. Another statistic to evaluate from the balance sheet is the amount of debt held by the gun stock.
Sustainability in the Market
With stricter gun control legislation, it's also important to assess whether gun stocks can withstand shifting market circumstances.
For instance, we covered how Smith & Wesson is relocating its headquarters from Massachusetts, where it has been based for the last 150 years.
This decision was prompted by the state of Massachusetts's new gun control regulations.
However, the sector may confront a greater obstacle when new rules are enacted.
On the other hand, since Vista Outdoor also serves the leisure business, it is less likely to be impacted by tighter companies.
In other words, you should minimize your exposure to the sector. Diversification is a wise idea if you want to buy gun stocks for your portfolio.
Best gun stocks you should consider
1. Smith & Wesson Brands (SWBI)
SWBI is one of the few remaining pure plays in the business, gaining notoriety among gun aficionados only for the legendary firearms it creates. At the pandemic's peak in March 2020, the gunmaker's stock plunged to $4.42 a share.
However, they soared to a peak of $23.57 in early 2021. However, the stock has had a price correction in recent months, and it is currently trading at a more acceptable value.
As with the other gun stocks on our list, profits are quite stable as a result of the increased demand.
On March 4, the top firearms brand recorded net sales of $257.6 million, a 102.2 percent raise over the year-ago quarter of $127.4 million. The gross margin was 42.6 percent, up from 28 percent a year before.
The firm earned $60 million in operating cash flow, which was utilized to fund a $50 million share buyback program and pay the company's second-quarter dividend.
And if you believed the corporation had reached the end of its dividend payments to stockholders, think again. Management approved a fresh $100 million share buyback program and a 5-cent-per-share dividend when the company reports its profits. It is critical to emphasize at this point that this performance should not come as a surprise.
Gun sales more than quadrupled in the second fiscal quarter, and profit growth was also strong.
2. AMMO, Inc. (NASDAQ: POWW)
AMMO, Inc. (NASDAQ: POWW) is a creator, manufacturer, and distributor of ammunition and ammunition component products for handguns and long guns in the United States and overseas. It produces STREAK Visual Ammunition, among other goods, which enables shooters to trace bullet trajectories and ranks 10th on our list of the top gun stocks to invest in.
Lake Street increased its price target on AMMO, Inc. (NASDAQ: POWW) shares from $9 to $11 in June, maintaining a Buy rating. According to analyst Mark Smith, the development occurred as AMMO, Inc.'s (NASDAQ: POWW) fourth-quarter earnings were above analyst forecasts.
On June 30, in reaction to AMMO, Inc.'s (NASDAQ: POWW) quarterly report, the stock rose 8% premarket due to the good response to the company's financial health, as sales increased by over 400% year over year. Earlier this year, AMMO, Inc. (NASDAQ: POWW) was awarded a contract to develop Ballistically Matched Multi-Purpose Rounds for use in US military operations. Additionally, the business reaffirmed its fiscal year 2021 sales projection of $62 million, compared to the $62.25 million consensuses, bringing the predicted year-over-year revenue increase to 319 percent.
AMMO, Inc. (NASDAQ: POWW) reported a -$0.01 earnings per share in the fiscal fourth quarter of 2021, missing projections by -$0.01. The company's $24.20 million sales, on the other hand, exceeded expectations by $0.25 million and beyond the previous quarter's $16.62 million number, with a gross profit margin of 19.57 percent. Additionally, AMMO, Inc. (NASDAQ: POWW) has increased by 109.76 percent during the last six months and by 150 percent year to date.
By the end of the first quarter of 2021, seven hedge funds out of 866 monitored by Insider Monkey had amassed a position in AMMO, Inc. (NASDAQ: POWW) valued at around $5.71 million. This compares to four hedge fund investors who held around $569,00 in the previous quarter. AMMO, Inc. (NASDAQ: POWW), Sturm, Ruger & Company, Inc. (NYSE: RGR), Smith & Wesson Brands, Inc. (NASDAQ: SWBI), Olin Corporation (NYSE: OLN), and Vista Outdoor Inc. (NYSE: VSTO), is a solid gun stock to invest in.
3. Vista Outdoor (VSTO)
Vista Outdoor is a producer and marketer of firearms and related leisure equipment. It has 16 distribution and production plants across North America.
Additionally, despite its enormously successful outdoor equipment sector, the corporation generates the majority of its income from its shooting sports section.
The company's operational performance has been variable during the last several years. Between 2017 and 2020, revenues decreased from $2.5 million to $1.76 billion. However, the following year, revenues increased to $2.2 billion. Additionally, its current-year growth is outstanding, with sales expected to reach $1.4 billion in the first half of 2022, up from $1.05 billion in the first half of 2018.
Additionally, management increased the fiscal year 2022 projection by more than 30% above the consensus. The company's management anticipates revenue growth of 10% each year by 2024. Additionally, the VSTA stock trades at a discount to one time's future sales, notwithstanding these figures.
4. American Outdoor Brands, Inc. (NASDAQ: AOUT)
American Outdoor Brands, Inc. (NASDAQ: AOUT) provides shooting, hunting, and camping items and is ranked number eight on our list of the top ten gun stocks to buy right now. American Outdoor Brands, Inc. (NASDAQ: AOUT) is a retailer of gun cleaning supplies and accessories, as well as airsoft guns, pellet guns, paintball guns, weapon lights, tactical scopes, and gunsmithing equipment. The Missouri-based outdoor goods company sells its 20-owned brands via both conventional methods of distribution and e-commerce platforms.
On July 17, following the company's strong fourth-quarter results, which were fueled by increased demand for outdoor activity and shooting sports products, B. Riley analyst Eric Wold maintained a Buy rating on American Outdoor Brands, Inc. (NASDAQ: AOUT) and increased the price target to $46 per share from $44.
The company's market capitalization is $371 million. On July 15, American Outdoor Brands, Inc. (NASDAQ: AOUT) announced fourth-quarter earnings of $0.34 per share, surpassing projections by $0.11. Revenue increased 49.6 percent year over year to $64.5 million in the fourth quarter. Meanwhile, American Outdoor Brands, Inc. (NASDAQ: AOUT) reported full-year net sales of $276.7 million in 2021, a year-over-year increase of 65.3 percent. The stock has increased by 55% year to date.
At the end of the second quarter of 2021, 16 hedge funds in Insider Monkey's database owned positions in American Outdoor Brands, Inc. (NASDAQ: AOUT), totaling $78.3 million, the same as the previous quarter's total of $50.2 million.
American Outdoor Brands, Inc. (NASDAQ: AOUT), Sturm, Ruger & Company, Inc. (NYSE: RGR), Smith & Wesson Brands, Inc. (NASDAQ: SWBI), Olin Corporation (NYSE: OLN), and Vista Outdoor Inc. (NYSE: VSTO), is one of the top gun stocks to buy right now, according to market experts.
5. Big 5 Sporting Goods (BGFV)
If you're searching for more diversity in your gun stock investments, go no further than BGFV. The firm, which is more of a sports shop than a gun manufacturer, has suffered for some time owing to the development of e-commerce and a broader shift in consumer tastes.
According to a Pew Research Center study, 50% of millennials between the ages of 18 and 36 agree that Who should strengthen the United States' gun restrictions. That does not augur well for a stock like BGFV's long-term prospects.
However, the company benefits from two factors. To begin, as I noted in the introduction, gun sales are at an all-time high, and although young men and women are more pro-gun control than the general population in the United States, they are only barely ahead of the general population.
However, if you remain unconvinced, BGFV should appeal to you. Due to its greater diversity, you can cover a lot more ground with this one. Additionally, it trades at a relatively affordable trailing price-to-earnings (P/E) ratio of 7.5x.
6. Olin Corporation (NYSE: OLN)
In contrast to the previous top-rated gun stocks described, Olin does not manufacture firearms. On the contrary, although the corporation used to manufacture them, it sold the business in 1981 and now focuses only on ammunition production. However, due to its significance in the firearms business, it remains one of the top gun stocks to consider.
During the COVID-19 outbreak, Olin's share price plummeted to roughly $9. However, the stock has fared very well since then, growing about 600 percent. The firm declared a net income of $306 million in the fourth quarter of 2021, representing a year-over-year increase of more than 1,000 percent.
As you can see, Olin has established a strong position for individuals seeking exposure in the firearms sector.
Additionally, the firm pays a dividend, although at a tiny yield of 1.57 percent at the time of writing. Olin's trailing P/E ratio of 6.07 is lower than the industry average of 12.78, making it an excellent bargain pick.
7. Sturm Ruger (RGR)
RGR is another popular choice among gun stocks. The stock has made a strong recovery from its 52-week low of $50 per share, closing at $65 on Friday.
However, the stock continues to trade at a significant discount to its July high of over $90.74. Value investors will especially like this one, given the two-to-one price-to-sales (P/S) ratio.
RGR is one of the most perplexing companies in the sector. For the most part, it's a reliable performer. Sales climbed by 5.4 percent and 26.5 percent during the previous three years, respectively. Net sales were $568.9 million, and diluted profits were $5.09 per share in the most recent quarter, compared to net sales of $410.5 million and diluted earnings of $1.82 per share in 2019.
Additionally, the corporation declared a dividend of 71 cents per share or nearly 40% of net profits. This is consistent with the gun's long-standing policy of generous dividend payouts. As a result, the dividend yield is a very healthy 4.3 percent.
Despite this, the stock trades at very attractive multiples.
Conclusion
There are more gun shops in the United States than McDonald's restaurants, and there is a reason for this. The demand is really high. It is recommended to consult with your financial advisor prior to making any investment decisions. The gun business is enormous and rapidly expanding. And, as previously said in this book, even the finest gun stocks may perform brilliantly in the light of the current status of the industry. However, before deciding which businesses to invest in, it is necessary to do due diligence.
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