Strong Start in 2013
Demand for firearms is stoking nearly 40 percent sales growth at both Smith & Wesson and Sturm Ruger. The latter said its first-quarter earnings rose 53 percent, driven in part by a 39 percent sales increase. To keep up, the company is planning $30 million in capital expenditures this year.
Smith & Wesson is also having trouble meeting demand. In its quarterly earnings press release, the company said it continues to boost production and has operated at essentially full capacity for the past four quarters.
"Despite these capacity increases, the company was unable to meet the ongoing demand across all of its firearm product lines," Smith & Wesson said.
For the quarter ending Jan. 31, Smith & Wesson reported a nearly 39 percent rise in net sales. It expects full-year sales growth of 40 percent.
One reason for the stocks' lackluster performance is that Wall Street is starting to think about when that tide will turn.
Any talk about gun-control measures has motivated consumers and driven purchases, Dionisio said. "The weakness in the stocks reflects concern that this is going to come to an end sometime soon," he said.
There's also a limit to how many more firearms people will buy, given already-high gun ownership rates. According to a December Gallup poll, 43 percent of Americans have a gun in their homes, versus 39 percent in 2010.
The National Rifle Association, which begins its annual meeting Friday, estimates that there are nearly 300 million privately owned firearms in the U.S., up by about 120 million since the 1990s.
Dionisio, who covers Smith & Wesson, has a neutral rating on the stock and said that while it trades at a discount to its historical average, concern is growing that recent sales boom has peaked.