The gun industry might seem fickle at times, with demand all too often shifting rapidly in response to gun-related incidents, our changing political landscape, and resulting changes in firearms legislation. So, finding the best gun stocks can be easier said than done.
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To help get you started -- and in no particular order -- here's why I think Sturm, Ruger (NYSE: RGR), Vista Outdoor (NYSE: VSTO), and American Outdoor Brands Corporation (NASDAQ: AOBC) are three top gun stocks investors should consider buying in 2017.
IMAGE SOURCE: Sturm, Ruger.
The case for Sturm, Ruger
Sturm, Ruger remains arguably the purest firearms play our market has to offer. And in spite of posting strong quarterly results in early November -- revenue grew 33.5% year over year, to $161.5 million, while net income per share increased 66%, to $1.03 -- shares of the gun maker have fallen nearly since November 8, when it became apparent Donald Trump would be the next president of the United States.
Of course, that might seem counterintuitive at first. But from an investor's standpoint, this caused worries that having a conservative, pro-gun president in office effectively minimized the risk of new anti-gun legislation. In turn, this could reduce the sense of urgency that prompted many consumers to go out and buy a gun before that happened.
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But it's also telling that earlier this month, Sturm, Ruger went out of its way to issue a press release announcing it had repurchased 283,343 shares of common stock on the open market for $14 million of cash on hand in the fourth quarter. That accounted for roughly 1.5% of Sturm, Ruger's outstanding shares and is a clear vote of confidence that Ruger management disagreed with the market's assessment of its post-election fate.
Of course, Ruger also still has $59 million remaining under its outstanding repurchase authorization, which leaves room for the company to buy back even more shares should it suffer another decline. But I think the company remains well positioned to continue generating shareholder value going forward.
The case for Vista Outdoor
Next, Vista Outdoor is a more diversified play, best known for its dozens of market-leading outdoor and shooting sports products ranging from Savage Arms to Bushnell and CamelBak, Primos, Bolle, Night Optics, Camp Chef, and Federal Premium, to name only a few.
Some caution is merited, though, ahead of Vista Outdoor's upcoming quarterly report next month. Last week, Vista Outdoor shares plummeted more than 20% in a single day after the company's SEC filings disclosed it "expects to record a material, non-cash intangible asset impairment charge" in the range of $400 million to $450 million for its fiscal third quarter -- a massive charge considering Vista Outdoor's entire market capitalization is roughly $1.6 billion as of this writing.
Vista also disclosed the charge stemmed from its hunting and shooting accessories segment, noting it had seen an acceleration of trends that held back its previous results, including a softening retail environment and increased promotional activity.
To be fair, Vista Outdoor also insists the enormous charge won't impact its future operations, liquidity, operating cash flow, or compliance with the terms of its debt instruments. But shareholders will need to wait for more color on the situation, including how long these headwinds are expected to last, when Vista next reports quarterly results in February. At the very least, then, I think investors would be wise to add Vista Outdoor to their watchlists in order to potentially take advantage of any buying opportunities it might offer in the coming weeks.
The case for American Outdoor Brands Corporation
Formerly known as Smith & Wesson Holding Corporation, American Outdoor Brands formally completed the change to its current moniker earlier this month, complete with a new ticker symbol (AOBC). Similar to Ruger, American Outdoor Brands shares are still reeling following the results of the election. But in contrast to the purer firearms play -- and similar to Vista Outdoor -- AOBC's strategic acquisitions should afford the company smoother results as the gun market ebbs and flows.
More specifically, American Outdoor Brands' strategy started to take shape with its $130 million acquisition of firearms accessories and supply company Battenfeld Technologies in 2014, then accelerated in a big way last year as the company acquired knife-maker Taylor Brands for $85 million, laser-sighting specialist Crimson Trace for $95 million, and survival and camping equipment provider Ultimate Survival Technologies (UST Brands) for $32 million.
It should have come as no surprise, then, when American Outdoor brands officially launched a new Outdoor Recreation division earlier this month, marking an effort to formalize its strategic diversification efforts.
What's more, when American Outdoor Brands released its latest quarterly results in early December, it told investors to expect growth in the mid- to high-single-digit range assuming a "normalized environment" -- that is absent any events that might spur consumer buying. For that growth, the company credits a combination of increased interest from first-time buyers, including younger consumers in urban areas as well a rise in women taking interest in shooting sports.
Assuming these trends prove sustainable, and combined with its newer supplementary businesses, I think American Outdoor Brands stock should be poised to outperform.
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