The 17% Drop

Gun sales won’t necessarily fall much in 2021, which makes the discounted shares of firearms manufacturers a good bargain.

Rich Duprey(TMFCop)Oct 12, 2021 at 7:30AMAuthor Bio

Key Points

  • In 2020, the FBI conducted a record-high 40 million background checks on would-be gun buyers.
  • Although adjusted figures show background checks declining in 2021, they remain elevated compared to historical levels.
  • 2021 is on track to be the second-best year ever for the gun industry.

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 (NASDAQ:SWBI×https://www.fool.com/quote/nasdaq/swbi/​) and Sturm, Ruger (NYSE:RGR×https://www.fool.com/quote/nyse/rgr/​) might worry about the outlook for their shares if this trend continues. However, the declining background-check figures are actually good news for gunmakers.Woman receiving instruction at a gun range

IMAGE SOURCE: GETTY IMAGES.

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.