The same factors that mired Sturm, Ruger (NYSE:RGR) in a three-year slump between 2017 and 2019 are now behind what may turn out to be a tectonic shift that could last for several years.

Ruger stock is up 61.6% over the first six months of 2020, according to data provided by S&P Global Market Intelligence, and we're seeing pressure from tidal forces mount higher in 2020. They may be unleashed with a thunderous roar on the gunmaker's earnings for many quarters to come.

An AR-15 modern sporting rifle on an American flag

Image source: Getty Images.

A year like no other

The gun industry's so-called "Trump slump" that followed the election of President Trump to office is in the midst of a reversal, and the results are dramatic.

Just-released FBI data shows the federal law enforcement agency conducted criminal background investigations on a record 3.9 million Americans looking to buy a gun in June, a 70% increase over last year and more than any time in the past since the agency began tracking the data in 1998.

This number isn't a one-to-one ratio with gun sales as it includes checks on concealed carry permit holders. An applicant might be denied, or a buyer might purchase more than one gun. However, it still represents the overall trend and mood of the market regarding firearms sales.

Background checks this year through the National Instant Criminal Background Check System (NICS) are up 38% from a year ago, and there have already been three months when more than three million checks were conducted. Three of the four months with the greatest number of checks have also occurred in 2020.

Politics and economics are converging in a major way this year, and that makes an investment in firearms manufacturers like Ruger and industry peer Smith & Wesson Brands (NASDAQ:SWBI) particularly opportune, even factoring in the massive run-up in value these stocks have already enjoyed year to date.

Gun ownership surging

Smith & Wesson, whose shares have quadrupled in value from their March lows, announced earnings last month that hinted to investors how the next report will likely play out for Ruger.

Smith & Wesson said firearms sales surged 37% in its fiscal fourth quarter as federally licensed dealers and retailers sought to keep up with consumer demand. Distributors had purposely been keeping their inventories lean to avoid a repeat of the situation in 2016 when they stocked up on guns and ammunition only to see the bottom drop out of the market. 

The main driver has been one of concern for personal safety. Unrest has broken out across the country, leaving many Americans concerned for the health and well-being of their families and property, and they're buying guns at a record pace.

Smith & Wesson said FBI background checks for handgun purchases were up 66% in the quarter, while long arms background checks rose 48%.

Ruger is ready to roll

Sturm, Ruger was already seeing the surge in demand in its first-quarter earnings report when firearms sales rose 9% on a 37% increase in shipments to dealers, leading the gunmaker to ramp up production again as it seeks to return to manufacturing 500,000 firearms a quarter.

Because Ruger largely refrains from engaging in the discounting the rest of the industry employed to juice sales during the slump, it has mostly been able to maintain its profit margins, even though it has seen them slide during the industry downturn.

Now, with a presidential election later this year that could heavily influence the direction of the gun control debate, Ruger and Smith & Wesson will see even more demand absorb whatever inventory is available and strengthen profit margins.

On target for growth

Ruger stock has not seen the same sort of gains as its peer, but shares have doubled over the last three months. The reason the gunslinger's stock should still be considered a buy: after Nov. 2020 -- even if the election doesn't go against the industry's interests -- the same inflamed passions will still be present.

While the fractured landscape is not healthy for the country, it creates an environment ripe for fueling gun sales that could remain elevated for years to come.