Summary
- Firearm sales surge in May.
- Gun control should be off the table for at least four months.
- Firearms misuse could derail the thesis.
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Smith & Wesson (SWBI) rose 38% in the last week as domestic troubles led to higher gun sales. In this article, I discuss the potential for further upside ahead of earnings this week.
Firearm sales surge in May
Smith & Wesson has surged from lows near $6.00 in mid-March to trade at $16.50, with the latest push higher being driven by higher firearm sales.
Analysis of FBI NICS data by Small Arms Analytics Forecasting (SAAF) has reported that Americans purchased over 80% more guns in May than they did in the previous year.
Rifle sales have increased by around 66% as a perfect storm of fear has been building up. Uncertainty has grown due to the coronavirus, with events such as the run on toilet paper and stores, leading to many considering the safety of their property. Many were likely concerned that stores may not re-open and one week in March saw more than 1.2 million NCIS background checks.
In the last two weeks, this fear has increased due to the Minneapolis riots, which have quickly spread to other states. Adding to the anxiety are calls to de-fund police departments, while an "autonomous zone," has been set up in Seattle.
Estimates are coming in that over 6 million guns have been sold since the start of the virus. We now have news that China is on partial lockdown, while states in the U.S. are seeing a rise in new cases following the mass protests.
Gun control should be off the table for at least four months
Although there has been a push by some high-level Democrats to tighten regulation or outright ban of firearms, this is not likely to happen under President Trump, who has tweeted criticism in the last days over that stance.
This leaves investors with a four-month window into the election for sales to make their way into Smith & Wesson's balance sheet.
The company was recently spun off from its time under the American Outdoor Brands (AOBC) banner. In a press release on June 1, the Chairman said:
The name change of our parent company is an important step toward spinning off our outdoor product and accessories business, which remains on track to occur in late summer. We believe that separating into two independent public companies will allow each organization to better align its strategic objectives with its capital allocation priorities. We also believe that this action will give the investment community clearer insight into the value creation potential in each of these independent companies, ultimately driving enhanced stockholder value."
