On Wednesday, gunmaker Smith & Wesson (SWHC) reported lousy earnings, and its stock price fell 14 percent. It’s down 34 percent on the year. Sturm Ruger (RGR), the other publicly traded U.S. gunmaker, has fared even worse: Its stock is down 42 percent this year. As my colleague Kyle Stock put it yesterday, people aren’t buying guns.
But there’s more to the story. Until this year, guns were selling like crazy. Sales had skyrocketed throughout the Obama presidency. Now, suddenly it looks like America has reached “peak gun”—and the Obama gun bubble is bursting.
What caused the tremendous runup in gun purchases? And why the abrupt halt? In a word: Obama. Three years ago, when I wrote about how Sturm Ruger’s stock price was up 400 percent during Obama’s presidency, Wall Street analysts had three theories about what was prompting sales. One was a fear that the Great Recession would set off a crime wave. Another, related, theory held that Americans were arming themselves in anticipation of a Greek-style debt collapse and the rioting that would ensue. But analysts said the biggest motivator was the fear of a liberal Democratic president taking away everybody’s guns.
As Jim Barrett, an analyst at C.L. King, told me at the time, “What spiked were the tactical rifles, the stuff Rambo might use”—what the industry euphemistically calls “modern sporting rifles.” (One pictures English gentry trotting through the countryside with their tweed outfits and trusty hounds.) Gun enthusiasts pegged these as the likeliest types to be banned and rushed to stock up.
When the feared gun bans didn’t happen after Obama’s election, and when deficit spending didn’t plunge the U.S. into apocalyptic chaos, gun rights groups decided that Obama was simply biding his time until he was reelected and wouldn’t have to face voters again—and then he’d come for their weapons.
Then, after the December 2012 school shootings in Newtown, Conn., Obama really did take a pass at modest gun control measures, which really sent sales through the roof.
Here’s a chart of FBI background checks, which are considered a reliable proxy for gun purchases:
But Obama’s stab at gun control failed miserably. And this finally seems to have convinced a significant number of gun enthusiasts that the president probably isn’t going to be able to take away their guns. It may also be the case, as another analyst pointed out to me yesterday that the U.S. is simply oversaturated with guns—which, unlike, say, lattes, don’t run out and are often passed on to the next generation. Hence, peak gun.
That appears to be the conclusion of some Wall Street analysts, too. Yesterday, KeyBanc Capital Markets put out a note to clients about Smith & Wesson’s weak earnings that warned of “an end market that is suffering from high inventories and low demand, as sales into the consumer channel declined 25.6 percent.” Looking deeper into the earnings, what really hurt Smith & Wesson last quarter was plunging sales of “long guns” (down 67.2 percent), vs. handguns, which were down only 3.2 percent.
In a world where a 9-year-old girl can accidentally kill someone with an Uzi and the nation hardly bats an eye, even the most paranoid, antigovernment Rambo wannabe appears comfortably assured he’ll have access to all the legal high-powered weaponry he needs. And that’s bad news for the gun industry.