• Research

Mar 1, 2018

S3 Analytics: Shorts Cashing In on Gun & Ammo Stock Weakness

The stock price of gun makers Sturm Ruger & Co (RGR) and American Outdoor Brands (VSTO) are rallying today, up 4.0% and 3.4% respectively, ahead of AOBC’s earnings release after the close even after Dicks’ Sporting Goods (DKS) is placing limitations on gun and ammo purchases as well as no longer selling assault rifles such as AOBC/Smith & Wesson’s variation of the AR-15. Today’s price move is a reversal to recent weakness in both these stocks after the Parkland shooting and a renewed public interest in gun control.

Total short interest in the two gun makers, RGR and AOBS, along with ammunition producers, Vista Outdoor Inc. (VSTO) and Olin Corp (OLN), and gun retailer Sportsman’s Warehouse (SPWH) is actually down in February after being flat in January. We are not seeing a rash of short selling in these securities yet, but that may change after AOBC’s earnings results.

Even though short sellers are down $8.4 million in mark-to-market losses in the five gun/ammo makers and gun retailer today they are up $40.6 million this week and up $112.1 million year-to-date. AOBC’S earnings results may provide an impetus for more short selling in the sector as analysts’ expect a decrease in both revenues and earnings. Surprisingly, even with these negative expectations, AOBC’s short interest has declined over the last month.

While a change in gun regulations may hurt these companies’ revenues in the long run, gun and ammunition “panic buying” has historically increased sales in the short term. Short sellers may decrease their near term short exposure in response to this recent surge in sales, but may begin shorting again once this buying spree is over.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
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