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Why Smith & Wesson Holding Corp's Shares Plunged 15% Today

By Travis Hoium – Nov 9, 2016 at 4:22PM

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A Trump administration may actually be bad for this big gun manufacturer.

Image source: Getty Images.

What happened 

Shares of gun maker Smith & Wesson Holding Corp (SWBI 3.79%) fell as much as 17.4% on Wednesday after the U.S. election was completed last night. Shares ultimately closed down 15.2%. 

So what

It may seem like a Republican administration would be good for gun owners and gun manufacturers like Smith & Wesson, but the reality is that the threat of gun control drives sales. Every time there's a mass shooting or the prospect of potential gun control getting passed in Washington, D.C., people go out and buy guns to get out in front of the potential regulation. That's just a reality in the business. 

Now that Republicans control two branches of government and will soon control the third, the odds of gun control have gone considerably down. And the lack of urgency will likely hurt gun sales, too. 

Now what

It's odd how stocks can react to political events, and Smith & Wesson's move does seem a bit strange today. But it's also logical because the company will probably sell fewer guns in the next four years than it would have had the election gone differently. And that means investors believe the company is worth less, which we're seeing in the stock today. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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