Smith & Wesson is using its Battenfeld Technologies accessories division to make acquisitions such as its recent purchase of laser sight maker Crimson Trace that will diversify its business away from just firearms sales. Image source: Smith & Wesson.

In the minds of many investors, publicly traded gun manufacturers Smith & Wesson (NASDAQ:SWBI) and Sturm, Ruger (NYSE:RGR) are practically interchangeable. When there are reports of mass shootings, or legislation limiting the rights of gun owners is introduced, their stocks move, if not in lockstep, certainly in similar directions.

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Yet each has characteristics that sets it apart, both from each other, and other weapons-oriented stocks -- idiosyncrasies that investors need to account for when making a decision about whether to buy shares in either or both of the companies.

The same, but different

Several years ago, as Smith & Wesson's gun sales shot higher, Ruger got saddled with capacity constraints that forced it to stop taking orders. Ruger also manufactures shotguns, such as its Red Label over-under model, while Smith & Wesson has had a negligible presence in the market. And though both are well-known for their handguns, Smith & Wesson's Shield model has quickly become one of the most popular for personal defense.

Smith & Wesson has also been the better investment, offering returns of nearly 1,000% over the past decade compared to just 250% for a similar investment in Ruger.

Undoubtedly, Smith & Wesson's long and storied history plays a role in why an investor would choose it over Ruger (though the latter is no new kid on the block). Smith & Wesson has higher name recognition than any other brand of gun, and one of every two revolvers owned today is a Smith & Wesson.

And now their paths are about to diverge further apart once more in a way that should keep Smith & Wesson the better stock to buy.

A sporting chance

In 2014, Smith & Wesson bought hunting and shooting accessories manufacturer Battenfeld Technologies, which sold products under brand names that included Wheeler Engineering, Caldwell, and Fajen. The gunmaker said the purpose of the $130 million acquisition was to house its own nascent accessories business; that division would ultimately be the home for all of its existing Smith & Wesson, M&P, and Thompson/Center Arms accessories.

Having laid out a five-year plan to find buyout targets that would meet its own strict criteria for investment returns, Smith & Wesson is now turning its vision into reality, first by purchasing longtime partner Taylor Brands, a knife maker, and then buying laser sight company Crimson Trace.

With $60 billion in annual sales, the sporting goods industry is some four times larger than firearms, and potentially more profitable. So it's natural that Smith & Wesson sees significant growth opportunities in it. Guns may be hot right now -- Ruger's second-quarter earnings report showed sales rocketed 20% higher, helping it beat earnings expectations by $0.07 per share -- but there will come a time when sales cool.

Check it out

Right now, the FBI can barely keep up with all the criminal background checks it's performing on would-be gun buyers. It just notched its 15th consecutive month of record investigations conducted, and year-to-date, it is running 32% ahead of 2015, which itself was a record year.

Data source: FBI. Chart by author.

But the gunmakers have been through this before. Following the Sandy Hook shootings in December 2012, background checks jumped to an all-time high of more than 21 million in 2013, only to fall to 20.9 million in 2014 as it became clearer that new gun restrictions were not in the offing. But additional incidents, new legislative proposals, and public blow-back sent purchases soaring once more in 2015, leading to 23.1 million background checks. And, as noted, we're on a path to far exceed that amount this year.

But it's a pace that can't be maintained, and a company as heavily reliant on gun sales as is Ruger (they account for 99% of net sales), will feel the brunt of the eventual slowdown much more acutely. Although Smith & Wesson's accessories business only generated $65 million last year, or 9% of total net sales -- not yet enough to cushion it against a gun sales dip on its own -- because it is moving fast into broadening its position in the market, investors should expect to see that percentage rise considerably in the quarters ahead.

Both Ruger and Smith & Wesson will continue to benefit from the political climate surrounding the gun market in the immediate future, but it will be Smith & Wesson that finds itself on target and on top when the storm finally breaks and gun sales slow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.