Will Gun Stocks Continue Crashing?
However, I cited many reasons why this rally could soon end and recommended investors to sell Smith & Wesson (SWHC), and short Sturm, Ruger & Company (RGR). While I expected both the stocks to fall considerably, which they have, I only recommended shorting Sturm, Ruger & Company because of the company’s lofty valuation.
While Smith & Wesson has fallen more sharply since the time I wrote the article, I still think it is lesser of the two evils.
Analysts are expecting Sturm, Ruger & Company’s sales to jump just by 7.6% in fiscal 2016. The target itself is very low, however, I think Sturm, Ruger & Company will fail to even meet this estimate. Investors shouldn’t expect Sturm, Ruger & Company to continue growing its revenue because I don’t think gun sales can continue surging. While the rumors of gun control laws have resulted in a strong surge in demand, the demand will prove to be short-lived as guns have a very long shelf life. Consumers don’t need to upgrade their guns with newer guns every year and if maintained properly, a gun could last for decades on end.
Thus, I don’t think Sturm, Ruger & Company will be able to meet its sales growth estimates that are already too low to justify its valuation. The same goes for Smith and Wesson. Hence, I think investors should be cautious about both the stocks.
Despite the 15% dip, I think Sturm, Ruger & Company is still a decent short. I think the stock could fall to under $60 in the coming weeks and investors can profit from it by initiating a short position. I still think Sturm, Ruger & Company has more downside potential than Smith & Wesson, which is why I would only recommend shorting the former.
Published on Apr 12, 2016By Ayush Singh