American Outdoor Brands Corp's Best Business Segment in 2016

It may be better known for its handguns, but Smith & Wesson's long gun portfolio outperformed everything last year. Image source: Smith & Wesson.

Handguns are always going to be an important component of American Outdoor Brands (SWBI -0.32%) operations, if not the most important, and its new focus on the rugged outdoors market will assume a greater percentage of total sales as time goes on. But in 2016 it was the long gun business that showed the best growth.

Data source: American Outdoor Brands quarterly SEC filings.

Bigger can mean better

Some of the most popular guns on the market today are handguns sold for concealed carry purposes. As incidents of domestic terrorism continue, people are going to seek out the best means of protection, which more often than not means a lightweight, compact handgun with a lot of firepower.

Yet despite their being mislabeled "assault rifles," today's modern sporting rifles are also an effective means of personal protection and defense. In its fiscal 2017 second quarter earnings report, American Outdoor Brands acknowledged that consumer preferences are shifting once again toward MSRs, and it was the introduction of its Smith & Wesson M&P-branded sport model of its already popular 15-22 MSR that allowed it to take market share in the space.

Image source: Smith & Wesson.

What is an AR

The AR-15 modern sporting rifle is the best-selling gun today because of its adaptability. Originally manufactured by the ArmaLite gun manufacturing company (the AR in the name refers to ArmaLite Rifle, not assault rifle), the rights were sold to Colt, which modified it and sold it to the U.S. military as the M16 rifle. Colt then made a civilian version, which is why it is often confused with a military weapon.

However, other than the fact that an AR looks like a M16, it functions the exact same as any other civilian rifle on the market. It's not a "machine gun," but rather a semiautomatic, meaning it shoots just one bullet at a time with each trigger pull and has the same firepower as any other rifle in its class. It just tends to look scary because of all the accoutrements that are attached, like collapsible stocks, barrel shrouds, pistol grips, and extended magazines.

But it's a very flexible and modular gun, meaning a user can customize it to perform better for their needs. Barrels, bolts, and magazines can be swapped out, while special optics, flashlights, and laser scopes can be added or removed to fit the user's needs. It's a very versatile weapon.

Over at GunBroker.com, the world's largest online auction house for firearms and accessories, Smith & Wesson's M&P15 version of the AR and the Sturm, Ruger (RGR -1.00%) AR-556 are among the most popular modern sporting rifles sold today, along with the Colt AR-15 and its LE6920.

Still big sellers

In its third quarter financial report, Ruger credited the AR-556 as being one of the guns that helped its new product segment account for 32% of all firearms sales over the first nine months of 2016. It anticipates that as it laps the gun's introduction to the market, new product sales will drop precipitously. It will still be a big contributor to its performance, but that segment will decline as it is no longer considered new.

Image source: Smith & Wesson.

It's true that American Outdoor Brands' long gun division is much smaller than its handguns in terms of shipments, so the growth achieved does appear especially notable. Where long gun sales grew $75 million year over year, handgun sales jumped by more than $164 million -- so as noted earlier, handgun sales are always going to be integral to American Outdoor's success.

Yet its long gun business is really coming into its own now. If Smith & Wesson plugs the gaping hole in its operations with an acquisition or introduction of an internally developed shotgun -- it has no presence in that market currently -- long guns could be the best performing business not only of 2016, but for many years to come.