What happened

Investors in firearms manufacturer Sturm, Ruger (RGR 0.53%) were enjoying a terrific year heading into late summer, with the shares doubling from March lows. But the momentum has slowed. The shares fell 13.7% in September, according to data provided by S&P Global Market Intelligence, on worries the once red-hot firearms market is beginning to cool.

So what

Historically, presidential election years have meant strong firearm demand, and 2020 has continued this trend. June and July saw record numbers of background checks performed by the National Instant Criminal Background Check System (NICS), a required step in new gun purchases.

A firearm with bullets on a table.

Image source: Getty Images.

But the momentum ground to a halt in August, and Sturm, Ruger shares trended down in the first week of the month after the NICS data was released. About 3.1 million background checks were performed in August, down from 3.6 million in July and 3.9 million in June.

Some slowdown was to be expected, and it should be noted that 3.1 million by historical standards is still a very strong number. But there is only so much demand for firearms even in the best of times, and investors seemed to use the August report as an excuse to take profits after the impressive stock run.

Aegis analyst Rommel Dionisio, in initiating coverage of Sturm, Ruger mid-month with a hold rating, reinforced the sentiment that it might be difficult for the stock to run much higher for now. Dionisio noted that Sturm, Ruger's product mix is skewed toward hunting and target shooting, and not personal defense, at a time when self-defense is a key reason people are shopping for guns.

Now what

While presidential election years historically have been good for gun sales, the year after tends to see demand weaken. Who knows if history will repeat in 2021, but stats like that have helped to turn sentiment away from the stock.

Sturm, Ruger's size and diversification, including a business catering to law enforcement and the military, make it a strong choice among gun stocks. But firearms companies tend to have only limited appeal and it's possible the best of this cycle is already now behind us. Investors should tread carefully for now.