Once again, gun buyers defied analyst expectations and set another record in October. The FBI reported that background checks conducted by its National Instant Criminal Background Check System recorded more than 2.3 million investigations performed during the month, 18% more than in October 2015 and 17% more than this past September, when Wall Street downgraded Smith & Wesson Holding (SWBI 1.03%) stock because peak demand had apparently run its course.

Wall Street analysts think the gun boom is over, but there's something they're not seeing to suggest otherwise. Image source: Flickr via zombieite.

Although the firearms industry proved analysts wrong, in light of Republican nominee Donald Trump's upset victory in the presidential race -- and the subsequent sell-off in gun stocks -- it is right to ask just how much higher can gun buyer demand run?

Not looking at the big picture

The problem, of course, with Wall Street's analysis was they missed the anomalies that were occurring in individual criminal background-check numbers. An FBI computer upgrade caused Kentucky to opt out of reporting full data for August, and September's numbers were delayed, meaning the full picture wasn't being seen. Other states as well had abnormally low numbers, leading the National Shooting Sports Foundation to say it didn't have confidence the data was correct.

October's numbers were something of a reversion to the mean, but they might have been distorted, too, this time to the high side. After all, Kentucky reports on average 120,000 checks every month, but last month it reported 173,000, probably from a backlog. Most of the other states with anomalies, however, all seemed to be back on track.

And according to some, Trump's electoral victory ought to serve as something of a pressure relief valve for gun buyers who were fearful that President Obama -- and Democratic nominee Hillary Clinton, should she have prevailed -- would enact strict laws on access to firearms. With Trump purportedly expected to offer more gun owner-friendly prescriptions to reduce gun violence in the country, the need to go out and buy a gun now -- today! -- is not as imperative.

Image source: Getty Images.

A hidden flaw

Yet that sort of logic ignores what gun buyers were actually buying. When you look at the most popular guns that Smith & Wesson, Sturm, Ruger (RGR 0.97%), Glock, Sig Sauer, Beretta, and others were selling, they weren't just the ones you'd expect to be most targeted by tough gun-control measures, but also included those designed for concealed carry and personal defense.

Ruger's second-quarter sales, for example, were indeed driven by demand for its Precision Rifle and the AR-556, but also its concealed-carry option, the LC9s. President and COO John Killoy told analysts during the earnings conference call with analysts that those three weapons helped push new product sales to $103 million, or 30% of all firearms sales for the first six months of the year, but the percentage was destined to fall next quarter, as the AR and the LC9s dropped out of the "new product" category. That means they have an outsize impact on Ruger's results, and there's no reason to suspect the CCW weapon, in particular, won't continue to influence sales. 

Smith & Wesson has similarly pointed to its small CCW M&P branded handguns as a reason behind the 38% increase in firearm sales it notched in its fiscal 2017 first quarter. During its own call with analysts in September, CFO Jeff Buchanan said its most popular weapons have been its M&P Shield family of guns and the Bodyguard 380, which is described as delivering "personal protection in an easy-to-carry, comfortable platform."

Still on target for growth

What that means is that political rhetoric and the election of any one candidate to office probably wouldn't have as much of an impact as you might think. While both Smith & Wesson and Ruger said the atmosphere surrounding gun control certain play a role in their continued outsized performance, it really may be that individual views on how the world around them is that will drive sales. Fears of crime or terrorism just may have a bigger part to play than believed.

Image source: Getty Images.

And civil unrest that's developing in the wake of the election is going to keep shining a light on personal safety, suggesting the gun boom isn't over yet. Moreover, in predicting that October's NICS numbers would surprise analysts last month, I also noted that when it comes to background-check numbers, November and December routinely notch higher numbers than the month before as well as the prior year. Taken together, October, November, and December rank as one of the top-selling months for buyers to submit applications to purchase firearms.

Certainly, this year is going to blow away the results of 2015's record year, and there is every indication that the pace of gun buying will remain high so long as fears of crime, civil unrest, and terrorism are present. So how high can gun demand run after 18 straight record months? Time will tell, but I'd say a lot higher than where it is today, and I don't think this streak is anywhere near over yet.