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How American Outdoor Brands Investors Should View the Threat of Gun Control

By Motley Fool Staff - Feb 16, 2017 at 10:31AM

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The relationship between firearms regulation and industry demand is not what you might expect.

In this segment from Industry Focus: Consumer Goods, the cast continues with its theme week as financial analyst Gaby Lapera sits in on the show to hear stock pitches from analysts in each sector. As it turns out, one of her biggest concerns regarding American Outdoor Brands ( SWBI 1.03% ) is around the state of firearms regulation and the potential for gun control to negatively affect the company's prospects going forward.

Find out how the company is adapting itself to this often uncertain environment and why industry benchmarks should have investors excited.

A full transcript follows the video.

This podcast was recorded on Feb. 7, 2017.

Gaby Lapera: You mentioned legislation. I know that you said that they are moving toward the camping equipment to help smooth that out. Do you actually foresee that as being a problem in the United States? I feel like every time we have gotten close to gun regulation, we've backed away.

Vincent Shen: I feel that is definitely a risk factor that you have to take into account for the industry. The fact of the matter is, demand often goes hand-in-hand with greater calls for gun control. So, I think about 2012, 2015, after some shooting tragedies in this country, you had government officials and some leadership, including the president, speak to potential calls for new assault weapons bans, and what that results in is a run for this industry, where a lot of these companies could not even keep up with demand. And part of that is the reason why American Outdoor Brands has really focused on having some of that flexibility in their manufacturing, to address things like this, because it can be so cyclical. It can happen so quickly. But in terms of regulation, I think, overall, things are much steadier now in this administration. I can't speak to that 10 to 15 years from now. But overall, it seems like the 2nd Amendment is here to stay.

Something that I have seen that's more encouraging for the industry is the idea that there were record numbers of NICS checks in 2016, that is the National Instant Criminal Background Check system. Each time you want to purchase a firearm from the store, they will run a check. So, it's not a perfect one-to-one. But these checks are usually seen as a proxy for demand. Record numbers in 2016. And overall, there have been record numbers of concealed-carry permit applications in several states. Industry surveys show outsized interest from new shooters, first-time shooters, from underrepresented demographics like women and minorities. Overall, it seems like interest is growing. And you'll see mixed polls and surveys about whether gun ownership in this country is going up or down. But, by all these other metrics, it seems like demand there is strong and growing, and I generally see this as a very sustainable market.

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