After the last presidential election, the firearms industry went into a deep three-year slump. Sales cratered and one of the biggest firearms dealers went bankrupt, causing gunmakers like Smith & Wesson Brands (SWBI 0.65%) and Sturm, Ruger (RGR 0.05%) to see their stocks take big hits. 

Smith & Wesson lost about 75% of its value while Ruger fell about 40%. Leading ammunition manufacturers Vista Outdoor (VSTO -0.23%) and Olin (OLN -1.73%) also saw sales collapse, while Remington Outdoor, which straddled both worlds as a firearms manufacturer and ammo maker, declared bankruptcy twice. The remnants of its business were just auctioned off with Ruger and Vista getting some prime assets.

Now we're weeks away from the next election, but if President Donald Trump wins again, investors shouldn't expect a repeat of the last time. There will be no "Trump Slump" and the booming sales we're seeing now should continue.

Modern sporting rifle laying on American flag

Image source: Getty Images.

Locked and loaded

Four years makes a difference. Back in 2016, the gun industry had worked itself into a frenzy on expectations that then Democratic presidential nominee Hillary Clinton would win the election and enact stricter gun control measures. Firearms dealers loaded up their inventory ahead of time for the crush of gun buyers sure to come.

Trump's surprise win caught the industry flat-footed as Republican control of Congress and the White House meant there would be little movement on the legislative front. Individuals no longer saw the need to rush out and buy a gun before they were banned, and adjusted FBI background checks data on potential gun buyers that had risen to a record 15.7 million in 2016 tumbled 11% the following year. Even with rising rates over the past year or so, background checks last year were still down more than 25% from those highs.

This year, the same sort of dynamic is playing out. There have already been more background checks on gun buyers done in just nine months of 2020 than were performed in all of 2019, and they're running 42% ahead of the pace set in 2016 at the same period.

Although polling data once again has Trump trailing his rival by a substantial margin heading into the election, the gun industry aftermath won't be the same if he pulls another upset victory.

Chart of percentage change in FBI gun buyer background checks from 2016 to 2020

Data source: National Shooting Sports Foundation. Chart by author.

Caution still rules

The firearms industry and the forces pushing sales higher aren't the same today as they were back then.

Federally licensed gun dealers and retailers have a different mindset because of their experience last time out. The burned hand learns best, so despite sales surging, the dealers are being more cautious with their inventory.

In its fiscal first-quarter earnings conference call last month, Smith & Wesson said channel inventory at its strategic retailers and distributors actually declined 58% year over year despite increased shipments.

While that shows the outsized consumer demand that exists for firearms, it also indicates firearms dealers aren't stocking their shelves to the ceiling. They might not be able to keep up with demand at the moment, but they're also not planning on getting out ahead of it either.

A powder keg of turmoil

The reason why people are buying firearms is also different. Although buying remains fear-based,  it's not necessarily over gun control legislation advancing if former vice president and Democratic presidential nominee Joe Biden wins, but rather for personal safety.

Gun sales are soaring because people feel the need to defend themselves, their families, and their property from the riots and unrest racking a number of major American cities.

Portland, Oregon, for example, has suffered over 130 straight days of unrest. The Justice Dept. has deputized the state police and dozens of Portland officers as U.S. Marshals after local prosecutors refused to charge people who were arrested.

Vast swaths of downtown Seattle were ceded to rioters who attacked a local police precinct, while the Minneapolis city council called for defunding and dismantling the city police department, a movement that has gone on to receive support from politicians in several other large cities.

By allowing such incidents to continue, politicians have left individuals feeling they have little recourse but to take their safety and protection into their own hands.

The same, but different

If President Trump wins reelection, these factors driving gun sales aren't going to change, and may in fact increase. There have been regular protests since 2016 over his presidency and should he mount another successful campaign, protests will likely continue, if not intensify.

Firearms sales are on track to break all records this year benefiting both Smith & Wesson and Ruger. Ammunition also remains in short supply, so even with Vista's acquisition of Remington's ammo business, it may not be enough to keep up with demand.

Olin also recently reported it has seen four consecutive quarters of rising profits for its Winchester brand as sales remain elevated, a situation it expects to continue for at least the rest of this year.

There is no indication the slump the gun industry felt following the elections four years ago will return. Though the stocks of Smith & Wesson, Ruger, Vista, and Olin are all soaring in 2020, there may be a lot of blue skies during the next four years, too.