According to the FBI, adjusted criminal background checks on potential gun buyers fell by 17% year over year in September. But after last year's record-setting pace, it's not surprising that firearms sales appear to be cooling off.
Now, investors in firearms manufacturers like Smith & Wesson Brands (SWBI 4.31%) and Sturm, Ruger (RGR 2.54%) might worry about the outlook for their shares if this trend continues. However, the declining background-check figures are actually good news for gunmakers.
Shooting out the lights
The FBI reports it conducted over 2.6 million background checks on gun buyers in September and has run almost 30.5 million checks through its National Instant Criminal Background Check System (NICS) so far this year. That's actually 5.6% more than it ran over the same period in 2020, a year that broke all kinds of records for gun sales.
Yet sometimes, statistics can be deceiving. The raw data the FBI reports also includes checks that it runs on existing concealed carry permit holders to make sure they're still eligible to hold such a permit, so it doesn't give a wholly accurate picture of current consumer demand for firearms.
Smith & Wesson's sales doubled in 2020, breaking through $1 billion for the first time. This year, for the fiscal quarter that ended July 31, 2021, they were up by another 19.5%. Ruger's firearms sales rose 39% in 2020, and through the first six months of 2021, they are running 52% higher year over year.
The National Shooting Sports Foundation takes the raw FBI numbers and subtracts such checks from the figures, along with other administrative checks, to come up with a better barometer of market demand. Its adjusted figures show that background checks fell 17.3% last month and are down more than 24% year to date.
Although that seems to underscore the downward trend, one can't ignore that it's a comparison to the single biggest year for gun sales since the FBI began keeping records of this type in the late 1990s. If you compare them to 2019 figures, though, you find that this year's background check numbers are actually running 27% higher. They're also running 8% ahead of the numbers for 2016, the previous record year.
This reveals that demand for firearms is extremely strong on a historical basis -- it's just not as high as it was at its peak last year.
Keep your powder dry
This all means the market for firearms is still healthy. The National Shooting Sports Foundation estimates that more than 8 million people bought their first guns in 2020, and during the first half of this year, another 3.2 million became firearms owners for the first time.
The headline numbers rarely ever tell you the full story. Investors who dig a little deeper should recognize that the gun industry remains robust. As such, firearms and ammunition manufacturers should remain good investments.