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Is the 'Biden Bump' Already Over for Gunmakers?

By Rich Duprey - Jul 9, 2021 at 6:27AM

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Firearms sales are slipping after setting a record pace last year.

Gun sales soared last year on the possibility that President Joe Biden's election would usher in an era of strict new gun control legislation.

As riots and civil unrest in major cities were breaking out across the country following the death of George Floyd while in police custody, politicians joined in on the call for "defunding the police." While Biden did not support the defunding movement, he did agree with diverting funds from law enforcement agencies to other priorities.

Person taking target practice at firing range.

Image source: Getty Images.

Many people believed they needed to take the safety and protection of their families and their property into their own hands, with the National Shooting Sports Foundation (NSSF) saying 8 million individuals purchased a firearm for the first time last year.

After suffering through three years of the so-called "Trump Slump," the period during former President Donald Trump's tenure when the firearms industry swooned as fear of tough new gun ownership laws largely evaporated, the "Biden Bump" roared into being. But is it over almost as soon as it began?

Up in smoke

The FBI says the number of criminal background checks it performed on potential gun buyers in June tumbled 22% from the year-ago period, marking the first year-over-year decline reported in 26 months.

The NSSF, which adjusts the FBI's raw data to eliminate duplicate checks, such as those performed on existing concealed carry weapon permit holders to ensure they're still eligible to have one, and which gives a more accurate picture of consumer demand for guns, says the decline was even worse.

Adjusted background checks plunged 41% last month to 1.28 million from 2.18 million a year ago, and year-to-date adjusted checks through the National Instant Criminal Background Check System (NICS) are down more than 15%.

After having been ahead of last year's record-breaking performance for the first five months of 2021, the industry looks like it may be heading into a new downturn.

Person holding a shotgun in a gun store.

Image source: Getty Images.

Still on target for growth

But maybe not. Both Smith & Wesson Brands (SWBI 1.08%) and Sturm, Ruger (RGR 0.96%) reported record sales from gun buyers and said they see no sign of it letting up. Smith & Wesson, in fact, crossed the $1 billion sales threshold last quarter, the first time it's ever reported revenue so high.

Ammunition makers also still can't keep up with demand. Vista Outdoor (VSTO 2.06%), Olin (OLN 2.96%), and AMMO (POWW 1.18%) all are working overtime to eliminate the ammunition shortage currently being experienced. So why the seeming difference?

Although gunmakers often experience a lag of a quarter or two between NICS results being reported and their hitting the sales numbers (so flagging background checks may take some time to show up in Smith & Wesson's and Ruger's financials), the decline is really not as ominous as it looks.

Last year, as previously noted, was a record-breaking year. There were over 21 million adjusted background checks performed in 2020, or 60% more than in 2019 and the most that has been tracked since the NSSF began calculating the numbers.

If you compare last month's background checks to those conducted in 2019, you find the adjusted figures are still 38% higher, suggesting there remains significant, pent-up demand for firearms, just not at the breakneck pace recorded a year ago.

Hot shots for investors

Biden has also yet to carry through on his campaign rhetoric to enact tougher gun laws. Although he issued six executive actions in the very first days of his new administration, they were mostly administrative edicts. 

He has acknowledged the Constitution imposes limits on the actions he can take as president, and he says any real change needs to come from Congress. As there appears to be enough politicians on both sides of the aisle who oppose going too far with restrictive gun ownership laws, the urgency to buy a firearm sooner rather than later seems to be lifted.

Personal safety, though, remains the top concern of gun buyers as evidenced by the types of guns that remain in high demand, such as Smith & Wesson's M&P Shield Plus, a micro compact firearm and Sturm, Ruger's Max-9 pistol designed for concealed carry. ; gun control is more of an additional incentive to buy.

With violent crime on the rise all across the country, consumer demand for guns doesn't appear to be diminishing making the stocks of both firearms manufacturers and ammunition makers discounted values.

Rich Duprey owns shares of Smith & Wesson Brands, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Smith & Wesson Brands, Inc. Stock Quote
Smith & Wesson Brands, Inc.
$14.90 (1.08%) $0.16
Sturm, Ruger & Company, Inc. Stock Quote
Sturm, Ruger & Company, Inc.
$58.97 (0.96%) $0.56
Olin Corporation Stock Quote
Olin Corporation
$58.10 (2.96%) $1.67
Vista Outdoor Inc. Stock Quote
Vista Outdoor Inc.
$31.15 (2.06%) $0.63
AMMO, Inc. Stock Quote
AMMO, Inc.
$5.98 (1.18%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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