What happened
Shares of Sturm, Ruger & Company (RGR 1.37%) -- one of American's two big publicly traded manufacturers of firearms, exploded 12.5% higher in early trading Monday, and by 1:15 p.m. EDT, is still holding onto a 10.2% gain.
Two factors appear to underlie the shares' strength: gun sales and the prospect of even more gun sales.
Image source: Getty Images.
So what
Sturm, Ruger was already benefiting from an upsurge in gun sales last quarter as gun buyers stocked up on worries that the coronavirus pandemic would cause social unrest. According to FBI data, some 3.1 million firearm background checks (a proxy for calculating actual gun sales) were conducted last month -- up 31.5% from this time last year.
As it turned out, of course, the coronavirus pandemic instead kept most people stuck at home. But now, unrest has reared its head in a different form.
Last week, demonstrations broke out across the country. What began as protests against excessive use of force by the police, then broke out into sporadic rioting and destruction of property in some cases. Police responses to the demonstrations then led to more reports of excessive use of force. The net effect has been to make Americans feel less secure.
Now what
Rightly or wrongly, many Americans' instinct when feeling less than secure is to go out and buy a gun, and investors today are probably thinking that that's exactly what folks are going to keep doing. Even at a lofty 31 times trailing earnings, therefore, they're betting on Sturm, Ruger stock to grow sales and outperform in the months ahead.
