Why mass shootings may no longer boost firearm stocks

After previous mass shootings in the U.S., firearms manufacturers have seen their stock prices spike. But that pattern may be changing in ways that reflect the paralysis in America's gun debate -- a stasis that, perhaps counterintuitively, is working against gunmakers. 

Although shares of gun makers rose briefly following Wednesday's attack at a high school in Florida that killed 17 people, the surge quickly fizzled. On Thursday, Sturm Ruger (RGR) saw its stock close down 0.2 percent, while shares in American Outdoor Brands (AOBC, known until 2016 as Smith & Wesson) saw only a small lift.

In recent years, the stocks of companies have often gotten a bump after mass shootings, with catalysts for that rise reflecting the political climate as well as heightened fears about personal security. Specifically, gun buyers seemed motivated by concerns that such incidents could lead to more restrictive gun-control policy.

Shares of gun and ammunition manufacturers rose after a massacre that killed 49 at a Orlando nightclub in 2016, as well as a shooting in San Bernardino, California, the prior year that left 14 dead. 

After the Las Vegas attack that killed 58 concert goers in October, for instance, shares of Olin (OLN), which makes Winchester ammunition, rallied nearly 7 percent. On Thursday, its shares were up 1 percent, on par with gains in the overall market, which had the S&P 500 (SPX) up 1 percent.

P. James Debney, CEO of American Outdoor Brands, last year alluded to how incidents of gun violence help drive firearm sales.

"There are strong desires with people to protect themselves. And again, we saw that last year when there were a number of events that drove people to think about that more strongly than ever before, and that does happen from time to time, as we've seen in our history," he said in a Sept. 17, 2017, call with analysts to discuss the company's earnings. 

After news of the latest shooting, American Outdoor Brands's stock jumped nearly 6 percent before reversing course, while Sturm Ruger briefly rose before dipping into the red. Vista Outdoor (VSTO), which sells ammunition and rifle scopes, was down 0.8 percent on Thursday.

The decline bucked -- at least in the near-term -- the pattern in gun stocks after previous shootings. So what has changed? In part, firearms makers report an ever more competitive industry prone to steep discounting, including around the critical holiday shopping period.

But another factor seems to be that Donald Trump's presidency has allayed concerns about tighter gun control laws, a sentiment that has hurt sales and profits. Privately held Remington, for instance, cited "difficult industry conditions" in saying earlier this week that it plans to declare bankruptcy. 

American Outdoor's profits also slid 90 percent in 2017, Mr. Trump's first year in office, while Sturm Ruger in October reported a 35 percent decline in quarterly profits.

Speaking with analysts last summer, Sturm Ruger CEO Christopher Killoy touched on how gun sales had risen during the 2016 presidential race, only to fall after Mr. Trump was elected.

"The industry experienced strong demand that lasted almost the entirety of 2016," Killoy said in an August earnings call. "The demand was likely bolstered by the political campaigns in advance of the November 2016 election and fell off sharply by mid-November."

After seeing a lift in sales "due to some political events going on and the election" in 2016, Sturm Ruger is now seeing customers "take a little bit of a breather," Killoy added.

And, while there is no definitive tally of firearms sold, recent data from the FBI's National Instant Criminal Background Check System indicate that gun sales in January declined compared with past years. The agency reported 2,030,530 firearm background checks in January, down from 2,043,184 a year ago and from 2,546,805 in January of 2016. 

Not surprisingly, as gun sales have slowed over the past year, stock prices have fallen.

"Gun ownership is becoming increasingly concentrated, with fewer gun owners owning more guns, as guns are primarily marketed to people who already own guns," analysts at Wedbush Securities said in a recent note about American Outdoor Brands.

As Debney, the company's CEO, told analysts in December: "There is no fear-based buying right now."