Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI) will release its first-quarter fiscal year 2022 (FY22) financial results next Wednesday, September 1 after the close of the market. The company, like many other firearms manufacturers, has been riding high on a wave of record firearms sales. The Springfield, Mass.-base firearms maker had previously reported full-year net sales of $1.1 billion for the fiscal year 2021 (FY21), compared with $529.6 million for the year prior – an increase of 100 percent.
“The results of the past year, in spite of the unthinkable challenges that we faced as a nation and as a company, are a tremendous testament to the resolve of our dedicated employees, the power of the Smith & Wesson brand, and the strength of the partnerships we have with our customers. Our employees more than doubled the prior year sales, passed a milestone of $1 billion in revenue, and by every financial and operating metric, have delivered the most successful year in the 169 year history of the company,” Smith & Wesson president and CEO Mark Smith said in June when its FY21 results were released.
What Goes Up?
Even as record heat has gripped much of the country, and demand for ammunition remains at an all-time high, firearms sales have begun to cool slightly this summer. While still higher than 2019 and years prior, there has been an expected decline from last year’s records.
As a result, investors may be cautious about the short-term performance of some firearm brands. In other words, what goes up in the stock market, at some point will go down.
Here Come the Lawyers
But another factor could come into play – lawsuits.
Earlier this month, the government of Mexico filed lawsuits against ten firearms manufacturers including not only Smith & Wesson, but also Sturm, Ruger & Company (NYSE:RGR), Colt, and Glock. Government officials in Mexico City have argued that those companies “wreak havoc in Mexican society, by persistently supplying a torrent of guns to the drug cartels.” The lawsuit lays claim that 70 percent of guns traced in Mexico come from the U.S., and the Mexican government is seeking at least $10 billion in damages.
Given that the buying frenzy seen last year, where an estimated 8.4 million first-time buyers purchased a firearm (other reports cite the number as high as 11 million), combined with the fears of lawsuits, now could be the time to diversify the portfolio.
Calls for gun control are another consideration, even as that could result in a short-term spike in sales.
According to InvestorPlace.com, “the boom in gun stocks has been fading away in 2021, as investors start to question the upside in the industry during the Biden administration which wants to focus on gun control legislation. As a result, share prices of gun stocks could easily fall from their current levels in the coming months, reflecting market expectations for a slowdown in gun sales as well as increasing market saturation in the industry.”
In other words, now could be the time to stock up on more guns and ammo, while selling the stocks of those publicly traded companies to fund the other purchases.
Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.