Both are the leading players in their respective industries, and both are suffering from dramatic shifts that are causing upheaval to their businesses. American Outdoor Brands (NASDAQ:AOBC) is the top gunmaker in the country with one of the most well-known and most owned firearms brands. Anheuser-Busch InBev (NYSE:BUD) virtually owns the U.S. beer market and has a giant footprint on the world stage. Yet gun sales are starting to fall after years of growth while mass-produced beer seems to be in a secular decline.

Despite the challenges they face, they remain major forces and investors would be unwise to ignore them. Let's take a closer look at both to see which one might make the better buy.

Man drinking from large mug of beer while holding a modern sporting rifle

The only place beer and guns go together is in a portfolio. Drink and use firearms responsibly. Image source: Getty Images.

American Outdoor Brands

As the owner of the Smith & Wesson brand, American Outdoor Brands possesses the greatest name recognition of any firearm on the market, and one of every two revolvers owned in the U.S. is a Smith & Wesson. Net sales in its fiscal third quarter rose 11% to $233.5 million, with gross margins widening to 42.5% compared to 41.1% a year ago. Adjusted net income grew to $37.6 million, or $0.66 per share, versus $33.2 million, or $0.59 per share, last year.

Yet American Outdoor's stock has fallen 35% over the last 12 months and is down more than 10% year to date as there is concern that demand for guns has peaked for the foreseeable future and that it will be relegated to an extended period of slow or no growth.

There's a lot to suggest those fears are misplaced, or at least overwrought, since demand remains elevated, just not at the white-hot levels seen for the past two years. With millions of new shooters brought into the sport, and the changing face of the industry as more women pick up a gun for the first time, gun sales should continue to grow just as they have for decades.

Smith & Wesson's new M&P 2.0 pistol

Image source: Smith & Wesson.

Because it's also pursuing a parallel strategy of branching out into a new, though closely aligned, market -- the rugged outdoors industry -- one that is several orders of magnitude larger than firearms, American Outdoor Brands has the potential to see even better growth opportunities than it enjoys in guns.

American Outdoor Brands' stock is also deeply discounted. Across virtually all metrics, including on a price-to-earnings, P/E-to-growth, and price-to-free cash flow basis, the gunsmith's shares are cheap.

Anheuser-Busch InBev

There's no getting around the fact that Anheuser-Busch InBev is a beer-brewing behemoth. It has a 45% share of the U.S. market and a 28% of the global beer market, and produced over 500 million hectoliters in 2016, or about 13.2 billion gallons, though on an organic growth basis, that was down 2% from the year before. Yet total revenues were up 2.4% for the year and revenue per hectoliter (which excludes non-beer production) grew 4.5% as the trend toward high-priced premium beer continued.

Yet last year was all about its acquisition and integration of SABMiller. Although Anheuser-Busch had to give up a lot of top brands in order to make the purchase, Miller also gave it entry into the growing African market, where A-B had no foothold previously.

A group of friends together drinking Anheuser-Busch brand beers

Image source: Anheuser-Busch InBev.

For example, in the U.S., A-B had to divest Miller's stake in the MillerCoors joint venture with Molson Coors (NYSE:TAP); sell Miller's 49% position in China's CR Snow, the country's largest brewer; and sell premium European brands like Peroni, Pilsner Urquell, and Grolsch  to Japan's Asahi Group, which also acquired a bunch of Miller's central European brands.

In return, it got Miller's business in the emerging markets of Latin America and Africa, though those worked against it as the Brazilian real was devalued, hitting volumes and sales. The company also suffered from macroeconomic weakness and a sizable price increase, which A-B attributed to currency and commodity headwinds.  

It's also contending with the slowdown in craft beer. Having made a big bet on the niche that had been growing at double-digit rates for years, the craft brew niche grew at most 8% last year. With so many options to choose from, and a preference tending toward locally crafted beers, the big names in the business like Boston Beer (NYSE:SAM) and even A-B's own "mass craft" brews have declined.

Unlike American Outdoor Brands stock, however, shares of Anheuser-Busch InBev are richly valued by the market, trading well above market norms.

The verdict

As noted, these are leading businesses in weakened industries but with potential growth opportunities down the road. The deciding factor, then, comes down to valuation, and whereas the gunslinger looks undervalued across the board, the brewer appears consistently expensive.

Although there are a lot of moving parts in Anheuser-Busch at the moment, that, too, speaks against rating it a buy. Big mergers tend not to work as well as expected, and a mega one like its acquisition of Miller may not go smoothly. For that reason, investors ought to target American Outdoor Brands as the better buy.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Boston Beer. The Motley Fool has a disclosure policy.