Why Firearm Demonization Could Send Smith & Wesson Stock (NASDAQ:SWBI) Higher
Stock Analysis & Ideas

Why Firearm Demonization Could Send Smith & Wesson Stock (NASDAQ:SWBI) Higher

Story Highlights

Although the natural response amid rising gun violence in the U.S. is to clamp down on firearms, such efforts may only help companies like Smith & Wesson Brands. Essentially, politics fuels artificial demand, which may then lift SWBI stock.

Amid the horrific rise of firearms-related violence in the U.S., it’s only natural for politicians and the general public to call for increased gun control. However, the demonization of the controversial industry might only help gun makers/designers like Smith & Wesson Brands (NASDAQ:SWBI). Given the predictability of the associated undercurrents, I believe SWBI stock will move higher.

SWBI Stock May Rise on Artificial Demand

On paper, the easiest approach to handle the rising firearms-related violence problem is to limit either the supply of guns or to restrict their access. Either way, this well-meaning initiative sparks artificial demand. From Economics 101, less supply of a desired product will only spark greater demand for it. Therefore, the intuitive solution for gun violence will likely only catapult SWBI stock higher.

While a controversial subject, it’s important not to gloss over hard facts. Number one, there are already more guns than people in the U.S., according to a 2017 study. Considering that not every household owns a firearm, the only logical conclusion is that advocates of gun ownership buy several pieces. Therefore, with such robust baseline interest for the broader firearms subculture, any restriction to their access will almost certainly skyrocket sales.

In addition, SWBI stock has been a blisteringly hot investment this year. Since the January opener, shares gained almost 34%. In sharp contrast, the benchmark S&P 500 (SPX) index only moved up over 8% during the same period.

Another factor that doesn’t get much airtime because of its uncomfortable implications is that regular folks may need easier access to firearms out of necessity. With crime rates rising in the post-pandemic new normal combined with fewer people wanting to take on a career in law enforcement, households have alarmingly become responsible for their own protection.

Therefore, government agencies taking away the means of protection while also not buttressing local police forces will be incredibly unpopular.

Guns Aren’t the Problem

At first hearing, the concept of guns not being the central problem associated with gun violence sounds ridiculous. And to be sure, the firearm cannot be fully removed from the broader debate. Unlike a knife or hammer, a semiautomatic rifle with a high-capacity magazine can (on average) render more harm over a shorter timeframe.

Nevertheless, as public outcry rises, SWBI stock, in the long run, should be relatively immune from catastrophic loss. For better or for worse, the U.S. Constitution enshrines gun ownership rights (within reason). So, the extreme gun control advocates will be barking up an immovable tree.

More importantly, the subsequent gun control debate will eventually come to a cold, hard conclusion: the number of guns available in a society doesn’t necessarily correlate with higher or lower mass-violence incidents.

For example, Japan implements some of the world’s strictest measures against gun ownership. Yet The Washington Post notes that mass violence is “so rare” in the island nation. However, Switzerland has a “stunningly high” rate of gun ownership, per Business Insider, but the country does not have a mass shootings problem.

So, what might be the causal factor for so much gun-related carnage in the U.S.? It’s quite possible that a lack of education, along with a reduced emphasis on improving academic quality, may be a significant negative catalyst. As several economists pointed out, greater education attainment lowers criminality.

A Look at SWBI’s Financials

According to Smith & Wesson’s financial statement, in the fiscal year ended April 2021, the company posted revenue of $1.06 billion. That was up nearly 90% against the prior year’s tally of $529.62 million. However, in the following year, the company only posted sales of $864.13 million.

Against a quarterly framework, the narrative appears to be even harsher. In the three months ended January 31, 2023, Smith & Wesson rang up sales of $129.04 million, down more than 27% against the year-ago quarter’s result of $177.74 million. Put another way, Americans bought up all the guns they could handle during the post-pandemic new normal. Now, they’re off to other pursuits.

However, what would ironically rejuvenate the firearms industry is to talk about more restrictive gun control. That will probably skyrocket sales, leading to higher prices for SWBI stock. Frankly, given the emotional nature of the American political discourse, contrarians have reason to expect shares to move northbound.

Is SWBI Stock a Buy, According to Analysts?

Turning to Wall Street, SWBI stock has a Hold rating based on just one Hold assigned in the past three months. Currently, SWBI has no price target.

If you’re wondering which analyst you should follow if you want to buy and sell SWBI stock, the most accurate analyst covering the stock (on a one-year timeframe) is Mark Smith of Lake Street, with an average return of 33.34% per rating and a 55% success rate. See below.

The Takeaway: SWBI Stock is a Counterintuitive Buy

At first glance, efforts to restrict gun ownership seem to imply bearishness for SWBI stock. However, investors must consider the counterintuitive angle. First, it might be legally impossible to implement too severe of a gun control policy. Second, restricting access to firearms will only make these controversial products that much more desirable.


Get real-time notifications on news & analysis, curated for your stock watchlist. Download the TipRanks app today! Get the App