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Why Olin Stock Dropped 11% by 11 O'Clock

By Rich Smith - Mar 11, 2020 at 10:45AM

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Ammo demand is booming, so why is this stock down?

What happened

It didn't take a fortune-teller to predict this one: Fears of a Coronavirus apocalypse are having the expected effect among disaster "preppers" in America, who are now buying ammunition in bulk.

As Ammo.com announced on Friday, the past couple of weeks have seen a 68% increase in online purchases of ammunition through its website -- with spikes well above 100% in multiple states, reports Fox Business. One of the biggest brands benefiting from the sales is Winchester, the ammunition brand manufactured by Olin Corporation (OLN 3.00%).

And yet today, Olin stock is down 11.3% as of 11 a.m. EDT. Why?

A handgun and several bullets.

Image source: Getty Images.

So what

On the face of it, this seems illogical. Ammo sales up -- ammo stocks up, right?

Well, consider the details. Yes, Olin makes ammunition for guns. But according to data from S&P Global Market Intelligence, Winchester is actually the smallest of Olin's business segments, representing only an 11% sliver of the company's annual sales. (The company actually makes much more money from selling bulk chemicals such as vinyls and epoxy.)

Even if firearms ammunition sales in the U.S. were to literally double, therefore, they'd still make up only 22% of the company's total business. That's maybe enough to move the needle a bit but not enough to remake the company -- or even, necessarily, turn it profitable. (Olin lost $11 million last year).

Now what

Meanwhile, a second news item could be weighing on Olin stock even further. Yesterday, retailer Dick's Sporting Goods (DKS 8.40%) announced that it will halt sales of firearms in about half of its stores that still sell them. This will leave only 20% of the chain's stores still selling firearms.

Fewer guns being sold almost certainly will have the follow-on effect of lessened demand for ammunition to load into them. Although that's a factor not specific to Olin, it certainly should be taken into account in estimating future sales of ammunition.

That might be precisely what Olin investors are doing today.

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Stocks Mentioned

Dick's Sporting Goods, Inc. Stock Quote
Dick's Sporting Goods, Inc.
DKS
$84.39 (8.40%) $6.54
Olin Corporation Stock Quote
Olin Corporation
OLN
$46.66 (3.00%) $1.36

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