Gun stocks American Outdoor Brands (ticker: AOBC) and Sturm Ruger & Co. ( RGR) have had a rough couple of months, but things may not be getting better any time soon. According to Wunderlich analyst Rommel Dionisio, the U.S. gun industry will remain in a cyclical downturn for the foreseeable future.
Gun stocks got overheated in 2015 and 2016 when gun control became a hot-button topic on the campaign trail. From November 2014 to November 2016, RGR shares climbed 55.2 percent. In that same time, American Outdoor Brands, previously known as Smith & Wesson, surged 162.7 percent.
Since Republicans won control of the White House and both houses of Congress in November, the debate on gun control has fizzled out in Washington, and the stocks of gun companies have plummeted. Sturm Ruger shares are down 18.5 percent since Election Day, while American Outdoor Brands shares have plummeted 32.8 percent.
Dionisio sees no indication in the underlying market that investors should expect the tide to turn anytime soon.
“The firearms market currently faces several near-term challenges, including a cyclical downturn in demand, bloated retailer inventories in rifles, and a proliferation of competitive product introductions,” he says in a new research note on Sturm Ruger.
“We recommend investors remain on the sidelines until greater visibility behind a firearms market recovery becomes more evident.”
While Dionisio is complementary of Sturm Ruger’s management and brand, he says slumping firearm demand, bloated inventories and extremely difficult year-over-year sales comps are a bad news for gun stocks.
[See: 8 Ways President Donald Trump Will Affect Wall Street.]
At the same time the industry is suffering from inventory build-ups, a number of gun retailers have been closing. In the past year, Sports Authority, Sports Chalet, MC Sports and Gander Mountain all declared bankruptcy. The merger between Cabelas ( CAB) and Bass Pro Shops could also result in additional store closings as well.
For now, Wunderlich has a “hold” rating on Sturm Ruger and a $51 price target for the stock. The firm has a “hold” rating and $17 price target for American Outdoor Brands.
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American Outdoor Brands (AOBC), Sturm Ruger & Co. (RGR) May Fizzle originally appeared on usnews.com
