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Maksim

Continued "Trump Slump" for Gun Sales

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Hey everyone, some know, some don't... but I cover the gun industry for sites like Seeking Alpha and others.  One of the series that I do that is read by pretty much most of the major gun companies is my NICS series where we take a look at background check data.

Latest February numbers are out and they are fairly brutal. 

https://seekingalpha.com/article/4247075-nics-february-2019-brutal

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I think the biggest disconnect "gun investors" have is that what is good for gun rights, is BAD for the gun business.

You already have one of the major distributors pretty much in bankruptcy and a lot of over leveraged FFLs closing up (outside NJ).

Small niche players can thrive and some are, like Zev, but when you are forced to produce millions of guns a year... not as good of a time.

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One point about the NICS numbers. They tell you if a background check was done, but it doesn't tell how many items were bought at that time. Personally, I've bought more than a single item with one NICS check, more than once, so that NICS number by itself could be a little off. It should be bench marked against actual sales too.

1 hour ago, Scorpio64 said:

Higher than normal sales is not normal. 

That's true too, it can't be the new normal. NICS checks are up 50% from 10 years ago, but I don't think the population grew 50% during the same time period, right?

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4 minutes ago, Sniper said:

One point about the NICS numbers. They tell you if a background check was done, but it doesn't tell how many items were bought at that time. Personally, I've bought more than a single item with one NICS check, more than once, so that NICS number by itself could be a little off. It should be bench marked against actual sales too.

That's true too, it can't be the new normal. NICS checks are up 50% from 10 years ago, but I don't think the population grew 50% during the same time period, right?

True but that really has not changed since 1999.

The main reason why we look at NICS data is that it is the most up to date proxy we can find and once we work through the data to the adjusted methodology as I use, you look at the overall trends.  That is all.

In general, they line up very very well with the experience.  You then adjust that baseline to what you see the manufacturers do or their product mix.  For instance, is someone dumping a lot of rebates, etc.

The best proxy is actually the Excise tax data, which is a simple % of sales price, but that data, while available, comes with a big delay.

Beyond that, the people who do have data, are fairly fragmented and most are privately held, so the information is generally not shared.

As far as new normal, I still think we have about 20 to 30% to go further down... but we do have to keep in mind that normal depends on who is in power.  Right now we are still adjusting to the lower volumes past Obama.

That of course leads to the last point... all nics is, is a proxy for VOLUME... does not at all speak about price or profits.

Profits are down more than 50% for both Ruger and Smith and Wesson.

But there are companies who are doing well and speaking to my contact in the executive office at that Austrian company... 2018 was their 2nd best year YET!

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1 hour ago, silverado427 said:

Yup nothing like a good crisis to raise prices. 

Which is exactly why I just put in for 3 more permits. There's nothing I'm really wanting now, but the way Murphy is pushing with gun restrictions 2.0 (and maybe 3.0, 4.0, etc.), then add in all the crazy gun crap the Dems in the House are proposing, I figured it's time to obtain anything I might remotely might be interested in NOW, before the next manufactured crisis pops up.

So, it's time to break out the crystal ball and wish list and make Christmas come early this year.

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10 minutes ago, Sniper said:

Which is exactly why I just put in for 3 more permits. There's nothing I'm really wanting now, but the way Murphy is pushing with gun restrictions 2.0 (and maybe 3.0, 4.0, etc.), then add in all the crazy gun crap the Dems in the House are proposing, I figured it's time to obtain anything I might remotely might be interested in NOW, before the next manufactured crisis pops up.

So, it's time to break out the crystal ball and wish list and make Christmas come early this year.

3?!?!  Apply for 12 to 20.

Then line up guns and buy them with OGAM collector's exemption. 

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5 minutes ago, Maksim said:

Profits are down more than 50% for both Ruger and Smith and Wesson.

Profits are down because the market has been cutthroat and they are selling products under value.  For example, the Ruger American Rifle line changed the industry.  Insane accuracy at not just affordable, but a cheap price.    Everyone else followed suit.  Why buy an $800 rifle (with a high profit margin) when you can get the same accuracy for under $400?  Therein lies the problem, cheap rifles are not junk anymore, they are fantastic, but have a low profit margin.  The only way to maintain profits is with volume.

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34 minutes ago, Scorpio64 said:

Why buy an $800 rifle (with a high profit margin) when you can get the same accuracy for under $400?  Therein lies the problem, cheap rifles are not junk anymore, they are fantastic, but have a low profit margin.  The only way to maintain profits is with volume.

That's true.

I saw that same thing with Ruger coming out with lower end handguns to try a capture more of the market. Problem is, you never make up the lost margin with volume. Tesla is going to find that out really soon.

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So I have a very good relationship with Ruger and they are flying me out to test their newest products.

The price is actually not their idea... its called demand falling through the floor, and Smith and Wesson and others are trying to amortize the fixed expenses with higher volumes.  They are all sitting on excess capacity right now and deciding between idling or making inventory to sell at far lower depressed volumes.

The Ruger American Rifle, the Ruger Precision are all great and all.... but relatively speaking, are exceptionally light volume guns.

Your bread and butter guns are the modern compact/full size polymer pistols, your basic AR15, and shotguns.... and in all of those markets, a ton of competition.

Do you honestly think precision shooters make a difference for a company that sells 1.5 million guns a year?

They do if you are say a company like Zev and targeting 20k guns a year... but drop in a bucket for a Sig, Glock, Ruger, Smith Wesson, and others. 

Prior to Sandy Hook, your basic DPMS AR-15 was around $750 or so.

Today, you can get an equivalent gun for what... $400?

After Sandy, everyone came in trying to capitalize on selling Basic $600 ARs for $1500 to suckers concerned gun owners and new gun owners on the fence.  Then they bet BIG on Hillary... that did not happen and why now you have companies going through bankruptcies... 

Colt, Remington, AcuSport (Distributor), Gander Mountain and now you have Ellet Brothers/United Sporting Companies (Distributors) pretty much there too.

The Ruger rifle is priced where it is not because they want to... but because they have to... because generally, people would reach for a Remington 700 or a Savage for around the same price.  

And business decision wise... Rifles are at 12 year low levels... 

Yes, very conservative company and are in the best shape simply because Trump was elected.  (And no, they did not think he would be, at least the executive team).  Had Hillary been President... Vista and Smith and Wesson would be partying from the cash coming in. 

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4 hours ago, Maksim said:

The Ruger American Rifle, the Ruger Precision are all great and all.... but relatively speaking, are exceptionally light volume guns.

Do you honestly think precision shooters make a difference for a company that sells 1.5 million guns a year?

To give you one example, my neighbor is a gun nut same as me.  He has never wanted to do long range shooting UNTIL Ruger made that precision rifle.  Now he has the 308 version.  Think about that.

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So now I want to buy a Ruger American Line rifle.  lol. 

What I actually want is to minimize my calibers again.   I have had Ruger rifles in the past but got rid of them due to caliber.   Maybe I should get a .308 and be done with it.    I have a couple .308s already, so it'd be a fit.

 

 

 

 

 

 

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This might be a good time to buy stock. I was just looking over Ruger history and this might be close to the bottom. Come 11-2-20 you we could make $30 a share with Ruger. 

I have a lot of brkb and a little of ge. Thinking I should ride out the ge shit storm, take all the brk, dump it in a gun company, sell it on Monday before E day and buy back into brkb. 

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1 hour ago, Malsua said:

So now I want to buy a Ruger American Line rifle.

Another example, I wanted a "do all" rifle as well.  Something that wouldn't weigh a lot, shorter barrel, bolt action, cheap to shoot and I could hunt most North American animals.

Enter the Ruger American Ranch

My point, companies need to expand to survive.   Glock is the anomaly, but it still holds true.

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1 hour ago, louu said:

This might be a good time to buy stock. I was just looking over Ruger history and this might be close to the bottom. Come 11-2-20 you we could make $30 a share with Ruger. 

I have a lot of brkb and a little of ge. Thinking I should ride out the ge shit storm, take all the brk, dump it in a gun company, sell it on Monday before E day and buy back into brkb. 

I think I'd wait to sell anything.  Today is not a good day to get out of a position.  Of course if today is the top of a freefall, well, so it goes.  I expect an uptick though.

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9 hours ago, Maksim said:

Yes, very conservative company and are in the best shape simply because Trump was elected.  (And no, they did not think he would be, at least the executive team).  Had Hillary been President... Vista and Smith and Wesson would be partying from the cash coming in. 

Thats bad business practice ... Most people would know It would have been a short lived party.. I would have given them 6 months before new laws would have crippled them.  Problem is this.

People over ordered and over produced when the gettin was good assuming it was going to last.  People over extended on credit using those 90 day terms and just playing the one pocket to the next game...     It was no doubt doing to come crashing down.

I was one of those who did not over order AR's as others did.... Iv always been extremely conservative and am a firm believer in pay today for something you want to order. No need to use credit unless its for convenience of shipping it today and not having to run and fill out a ach form item. 

Sure floating money works for some until the market slows down.. next thing you know you are scrambling because you have a huge payment due in 20 days..... What you do at that point is Dump your merchandise in the hopes it will extend your lifeline a few more weeks hoping the market will pick up.

Sadly its a common story and has closed companies regularly  

 

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If i were a gun manufacture i would not be all that happy at this moment.

Considering the election is coming up in a 1+ years and the opposing party to trump seems to moving so far left that it will become unelectable. i can see a steady market at current numbers for the next 5 years...   Of course that can change and a leftie can be elected in 2020 and you will see a run on guns the world has never seen... it will make the sandy rush look like a joke.  But that will end just as quick, once the left gains controls.. prepare for the beating... If they are unopposed and hold both houses and the white house i can see some major players in the market close up shop. this includes some manufactures. 

They will go out of they way to bankrupt them.

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After my fair share of panic buying during the Obama years and pre-election, buying a gun is like taking another bite out of the same burger.

Yeah, it's a great time to be a gun buyer with all the new products and affordability going on.  Sig Sauer is like the Ford Motor of gun manufacturers with 15 different auto models and 20 different trim levels of the F-150.

Plus, technology is such that it seems anyone can open a machine shop and start producing cool AR or CZ Evo type guns or custom handguns (ZEV, LAV, Langdon, Proctor, etc).  That was my take away from past SHOT Shows.

So, the novelty has kinda worn off for me.  Yeah, the Sig 23423 and the new Glock X, Y, Z are great, but I'll stick with my Sig MK25 and BCM AR.

I would buy another game changer gun if another were to come out like an RPR or VP9 (bang-for-the-buck into Precision or H&K smooth striker).

Now, if Colt were to start producing the snake guns again, then.....

 

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Could it be that the market is reaching a saturation point?  The large majority of current and prospective gun owners have basically purchased as many guns as they'd want/need in the past few years.  From here on out, for a large majority of gun owners, it would be sell one/replace one type of purchases instead of buying multiples at a time?

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4 hours ago, louu said:

This might be a good time to buy stock. I was just looking over Ruger history and this might be close to the bottom. Come 11-2-20 you we could make $30 a share with Ruger. 

I have a lot of brkb and a little of ge. Thinking I should ride out the ge shit storm, take all the brk, dump it in a gun company, sell it on Monday before E day and buy back into brkb. 

No.

Read my articles on it.  I am actually kinda close on pulling trigger on AOBC. 

1 hour ago, remixer said:

 Now, if Colt were to start producing GOOD snake guns again, then.....

The King Cobra is by all accounts so far, a GOOD gun.

Trying to get my hands on one for testing. 

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4 hours ago, Malsua said:

I think I'd wait to sell anything.  Today is not a good day to get out of a position.  Of course if today is the top of a freefall, well, so it goes.  I expect an uptick though.

True, I got in years ago and made a ton already so I don't mind selling now. Just looking for a year or so flip to grow faster and buy more brkb next time. 

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1 hour ago, Maksim said:

No.

Read my articles on it.  I am actually kinda close on pulling trigger on AOBC. 

The King Cobra is by all accounts so far, a GOOD gun.

Trying to get my hands on one for testing. 

I bought 50 shares of AOBC just now.  ;)      Not a big deal, probably sell it next week if it recovers.

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2 hours ago, Heronimo42 said:

Could it be that the market is reaching a saturation point?  The large majority of current and prospective gun owners have basically purchased as many guns as they'd want/need in the past few years.  From here on out, for a large majority of gun owners, it would be sell one/replace one type of purchases instead of buying multiples at a time?

I think that is part of it. I just put in for 3 more permits, not because I needed something specific, but figured why not, it might just get more difficult in the future. So, now it's time to decide what to get and not duplicate what I have.

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