Gun stocks lag after gun control bill fails
The U.S. Senate's defeat of the gun control bill could deal a surprising blow to the gun industry.
On Thursday, the first full trading session since the bill was defeated, gun stocks lagged, and analysts fear this might be part of a wider trend.
In recent months, the fear of new restrictions has driven gun sales to all-time highs. Now, that incentive could be gone.
"When these things happen, we do see demand slide," said Neal Dihora of Morningstar, who covers Alliant Techsystems, an aerospace company that also makes guns for the civilian and military markets. "People start hoarding for a while, and [then they] realize they don't have to fill their basements with ammunition because it will still be there tomorrow."
Alliant's stock price dropped 1.5% Thursday, after seeing its shares surge 38% over the last year. Ammunition maker Olin Corp. fell 1.2%, after climbing more than 13% over the last year. Smith & Wesson Holding Corp. managed a 1.7% gain Thursday, while Sturm, Ruger slipped 1.5%.
The stock price for Cabela's, a retailer dependent on gun sales, dropped nearly 5%.
Obama's reelection and the Newtown shooting in December made gun enthusiasts fearful that regulations would be tightened. This prompted consumers to buy military-style semiautomatic rifles and high-capacity magazines, the prime targets in the so-called assault rifle ban. Prices jumped sky-high, stock ran out and factories struggled to keep up.
According to the FBI, the 10 top-volume weeks for background checks have occurred since President Obama's reelection. A report published by Scott Hamman, an analyst for Keybanc Capital Markets, said this was a 26% increase from the year before, "underscoring our belief that current levels of demand are unsustainable over the long term." The proposed assault rifle ban ground to a halt Wednesday, when the Senate shot it down, along with a proposed expansion of background checks.
Brian Rafn, a gun industry analyst and director of research at Morgan Dempsey Capital Management, said gun companies are going to have to figure out how to remain profitable now that the "visceral political craziness is removed from the equation."
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