Over the last several months, we’ve run several stories about the increase in gun sales throughout the country. Millions upon millions of Americans bought their first firearm this year. On top of that, the regular gun buyers are still purchasing guns–assuming they can find them in stock, anyway–just like the did before.
Let’s be honest, it’s a good time to be in the gun business.
However, some investors in the gun manufacturers don’t actually care about arming law-abiding citizens. They’re anti-gun activists who are trying to use their status as investors to try and pressure companies into adopting gun policies.
Well, things are going to get a bit more difficult for them..
Recently, gun stocks have been increasing as the situation in the US created an unprecedented demand for guns. The data from National Instant Criminal Background Check Systems (NICS), which does background checks for gun buyers, show that in March and May this year, the background checks crossed 3 million for the first time.
As the economy went down and the job market collapsed this year, many people expected that crimes would go up and bought guns for their safety. The political unrest, the fear of racism and the possible changes in the administration hiked the demand for firearms this year. It’s worth noting that firearm background checks for the first five months of 2020 totaled more than 15.2 million compared to 11.3 million during the first five months in 2019.
Smith & Wesson reported its fourth quarter 2020 results last Thursday. The gunmaker’s revenue jumped 32.9% to $233.6 million in the fourth quarter of 2020 beating the market’s view of $217.6 million. Adjusted earnings of $0.57 per share surpassed the analysts’ estimates of 40 cents a share.
Firearms segment revenue soared 37% annually due to strong orders from retailers and distributors, which was driven by sudden and heightened consumer demand for the firearms. In the fourth quarter, e-commerce channel grew 103% compared to the prior year and included a significant increase in direct-to-consumer sales.
Now, what happens when a company is making insane profits like this is that investors tend to buy up those stocks. Increased interest in owning the stock drives up the prices. That’s how it works in any industry, really.
However, for activist investors, this is bad news.
You see, these activist investors are generally not overly wealthy people. They’re activists and are making what should be business decisions based on their own politics.
The real investors, however, are looking to make money. They outnumber the activists and tend to have collectively deeper pockets. Because of those two factors, they’re going to buy stocks in gun companies looking to make a profit.
As such, they’ll drive the price up so activist investors will have a much more difficult time trying to gain more of a say in how a company operates. They simply won’t be able to afford as much stock.
Further, those new investors will want to continue to make money. They’ll actively oppose measures that would inhibit profit at these companies, something activist-investors don’t really care about. They actually want the companies to fail to some degree. They want to lose everything they have invested because they’re not looking to make a profit. Morally, they figure such a profit is wrong anyway.
Yet they’re the minority and as increased gun sales drive more investors to look at these companies, the activists are going to have a much, much more difficult time going forward.