While a tense  political environment in the U.S. led to increased gun buying last year, the resurgence in outdoor recreational activities with the gradual reopening of the economy and an increase in sales through e-commerce channels across all brands are also leading to a surge in sale of guns.

Worries about the social unrest stemming social justice dissatisfaction and populist proposals to  “defund the police”  resulted in significant surge in ammo sales last year. This surge in consumer demand is likely to continue as more and more people are now concerned with personal protection and home defense. Also, as hunting and shooting activities regain momentum as social distancing rules are relaxed, many citizens could join the gun buying binge, leading to a spike in gun sales in the coming months.

Therefore, we believe gun stocks like Vista Outdoor Inc. (VSTO), Smith & Wesson Brands, Inc. (SWBI) and Sturm, Ruger & Company, Inc. (RGR) should continue generating robust sales. These stocks have the potential to capitalize on powerful long-term trends and grow their sales and profits for many years.

Vista Outdoor Inc. (VSTO)

VSTO is a manufacturer and seller of various consumer products in the outdoor sports and recreation markets in the United States and internationally. It operates through two segments – Shooting Sports and Outdoor Products. The company sells its products to outdoor enthusiasts, hunters, athletes, law enforcement, and military professionals through retailers and distributors, as well as directly to consumers through its  website.

In September, the company announced that it had been named a successful bidder in the bankruptcy auction process conducted in connection with the acquisition of Remington Outdoor Company. This will broaden VSTO’s product portfolio and help it to better serve millions of consumers with best-known recreation brands.

VSTO’s revenue has increased 29.2% year-over-year to $575.18 million for the fiscal second quarter ended September 27, 2020. This was  attributable to the strong consumer demand for outdoor products. Its gross profit rose 79% from the year-ago value to $162 million, while its gross margin grew 786 basis points. The company reported  cash flow from operating activities of $198 million over this period.

The consensus EPS estimate of $0.45 for the quarter ending March 30, 2021 represents  a 309.1% improvement from the year-ago value. Moreover, VSTO has an impressive earnings surprise history;  the company beat consensus EPS estimates in three  of the trailing four quarters. The consensus revenue estimate of $502.39 million for the next quarter represents 17.8% growth from the same period last year. The stock has gained 296.1% over the past year.

How does VSTO stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

B for Peer Grade

A for Industry Rank

A for Overall POWR Rating.

The stock is also ranked #8 of 34 stocks in the Athletics & Recreation industry.

Smith & Wesson Brands, Inc. (SWBI)

Based in Springfield, Massachusetts, SWBI is a designer and seller of firearms worldwide. The company offers firearm-related products under the brand names — Smith & Wesson, M&P, Performance Center, Thompson/Center Arms, and Gemtech. It sells its products to gun enthusiasts, sportsmen, competitive shooters, hunters, law enforcement, security agencies, officers, and military agencies.

In mid-December SWBI announced that its Board of Directors had authorized the repurchase of up to $50 million of SWBI’s common stock through December 14, 2021. This  intent demonstrates the company’s  continued commitment to returning excess capital to its shareholders.

SWBI’s revenue has increased 118.7% year-over-year to $248.7 million in the fiscal second quarter ended October 31, 2020. Its gross profit rose 212.8% from the prior-year quarter to $101.07 million, while its EPS increased 4550% year-over-year to $0.93. The company’s cash and cash equivalents grew 27.9% from the year-ago value to $55.55 million over this period.

The consensus EPS estimate of $0.64 for the quarter ending April 30, 2021 represents a 12.3% increase year-over-year. Moreover, SWBI beat the Street EPS estimates in three of the trailing four quarters, which is impressive. The consensus revenue estimate of $929.01 million for the current year indicates a 36.9% increase from the same period last year. The stock has gained 95.1% over the past year.

SWBI’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” for Industry Rank, and a “B” for Trade Grade. Among the 34 stocks in the same industry, it is ranked #25.

Sturm, Ruger & Company, Inc. (RGR)

Founded in 1949, RGR manufactures and sells firearms under the Ruger name and trademark in the United States. The company operates in two segments – Firearms and Castings. It also manufactures and sells steel investment castings and metal injection molding (MIM) parts.

On November 25, the company announced its acquisition of the Marlin Firearms’ assets. RGR plans to start moving those assets to its Ruger facilities and set up manufacturing cells that will produce Marlin rifles going forward.

RGR’s net sales for the third quarter ended September 26, 2020 increased 53.4% year-over-year to $145.71 million. Its gross profit increased 157.5% from the year-ago value to $51.15 million. The company’s operating income grew 489.4% year-over-year to $32.86 million, while its EPS increased 407.1% from the prior-year quarter to $1.42 over this period.

The consensus EPS estimate of $1.17 for the quarter ending March 30, 2021 represents  a 34.5% improvement year-over-year. The stock has gained 35.5% over the past year.

It is no surprise that RGR is rated “Buy” in our POWR Ratings system. It has a “B” for Trade Grade. Among the 71 stocks in the Air/Defense Services industry, it is ranked #37.

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VSTO shares were trading at $29.11 per share on Monday afternoon, down $0.20 (-0.68%). Year-to-date, VSTO has gained 22.52%, versus a 2.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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