In this piece, we will take a look at the nine best gun stocks to buy in 2022. If you want to skip our industry introduction and jump ahead to the top five stocks in this list, then take a look at 5 Best Gun Stocks to Buy In 2022.
Market research firms estimate a healthy growth trajectory for the US gun industry. IBIS World estimates that the guns and ammunition manufacturing sector in the U.S. is worth $21 billion as of this year. Research firm Fortune Business Insights divides the gun industry into two segments, namely the guns and accessories market and the small arms market. Out of these, for the former, it estimates that this market was worth $6 billion in 2019 and it will grow at a compounded annual growth rate (CAGR) of 6.15% to sit at an estimated value of $9.3 billion by 2027 end. This growth will be driven by technological improvements such as the integration of carbon fiber into manufacturing which allows companies to reduce weight and improve durability. Another growth driver is the popularity of bolt action rifles which allow for greater customization and attract users.
With these details in mind, it's time to take a look at some of the best gun stocks in the industry. The top players in our list for you today are DICK'S Sporting Goods, Inc. (NYSE:DKS), Olin Corporation (NYSE:OLN), and Axon Enterprise, Inc. (NASDAQ:AXON).
We took a broad look at the gun industry to determine which companies are the top players and what the recent trends are. The firms were then selected according to their ability to adapt to the market trends and briefly analyzed through their financial performance and other relevant details. Finally, they were ranked according to hedge fund sentiment generated via Insider Monkey's 895 hedge fund survey for the second quarter of this year.
National Presto Industries, Inc. (NYSE:NPK) is an American defense contractor that provides the Department of Defense (DoD) with 40 millimeter ammunition, cartridge cases, detonators, and electro-mechanical products. The company is headquartered in Eau Claire, Wisconsin.
National Presto Industries, Inc. (NYSE:NPK), like other companies, has been hit hard by macroeconomic winds this year. However, the firm has a diversified business model, and its Defense segment, which is responsible for supplying the Pentagon, has become an anchor of support. Crucially, this segment also contributed to the bulk of the company's sales in 2021, with its revenue contribution coming in at 66%.
The ammunition and other product orders for the Defense Department are also poised to let National Presto Industries, Inc. (NYSE:NPK) ride out the recessionary storm. This is due to the fact that as 2021 ended, the firm had $461 million in defense backlogged sales. These will materialize within the next three years, and the growth of the Pentagon's expenditure also led to a 44% growth in the Defense segment's backlog last year. National Presto Industries, Inc. (NYSE:NPK) also pays a $1.13 dividend for a 7% yield.
Insider Monkey's 895 hedge fund survey for this year's second quarter saw nine investors in National Presto Industries, Inc. (NYSE:NPK).
Out of these, Jim Simons' Renaissance Technologies is the largest shareholder, with a $13 million stake that comes via 212,500 shares.
National Presto Industries, Inc. (NYSE:NPK) joins our list of top gun stocks for 2022, with some of the others being Olin Corporation (NYSE:OLN), DICK'S Sporting Goods, Inc. (NYSE:DKS), and Axon Enterprise, Inc. (NASDAQ:AXON).
Number of Hedge Fund Holders: 9
AMMO, Inc. (NASDAQ:POWW) is an American ammunition and ammunition components manufacturer. The firm serves the needs of a wide variety of customers such as the military, law enforcement, recreational shooting customers and those looking to buy guns for personal protection. It is headquartered in Scottsdale, Arizona.
AMMO, Inc. (NASDAQ:POWW) is one of the fastest growing companies in its industry, as it benefits from its small size. Over the past six years, the firm's revenue has grown at a remarkable CAGR of 149% and its gross margins have stood at 36.9%, despite the hardware intensive nature of its products. The company also leads its peers in enterprise value and EBITDA to free cash flow metrics, both of which are higher than the peers and stand at 7.1x and 119.3x, respectively.
Finally, a discount rate of 9%, a growth rate of 10% for the next ten years, and a terminal growth rate of 3% lead to a fair value of $6.45 for AMMO, Inc. (NASDAQ:POWW), which is more than twice its current share price of $3. Insider Monkey studied 895 hedge funds for their second quarter of 2022 investments to discover that nine had invested in AMMO, Inc. (NASDAQ:POWW).
AMMO, Inc. (NASDAQ:POWW)'s largest investor is Charles Paquelet's Skylands Capital which owns 691,557 shares that are worth $2.6 million.
Number of Hedge Fund Holders: 13
Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is one of America's oldest gun companies which was set up in 1852 and is headquartered in Springfield, Massachusetts. The company manufactures and sells a wide variety of guns such as revolvers, pistols, rifles, handcuffs, and suppressors. Its customers include the military, law enforcement, and enthusiasts.
Smith & Wesson Brands, Inc. (NASDAQ:SWBI), like other gun companies, is facing revenue normalization after record sales during the coronavirus pandemic. At the same time, high sales during the pandemic led to retailers stocking more inventory, and now the market is slowing down as a result.
Since it is struggling with the normalization of retailer inventory, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) can see its sales grow potentially by 46% once the inventory glut is cleared. During its latest earnings call, management also revealed that the order trend had improved in April 2022, for what might be a positive start to a new trend. The company also pays a 10 cent dividend for a 3.3% yield.
Insider Monkey's Q2 2022 survey of 895 hedge funds revealed that 13 had invested in Smith & Wesson Brands, Inc. (NASDAQ:SWBI).
Number of Hedge Fund Holders: 14
Sturm, Ruger & Company, Inc. (NYSE:RGR) is an American company that sells rifles and pistols. These include single shot, auto-loading and sporting rifles, center-fire auto-loading pistols, and single and double action revolvers. The firm is headquartered in Southport, Connecticut.
Sturm, Ruger & Company, Inc. (NYSE:RGR) might end up benefiting from the deflationary upstream wave that has reduced commodities prices this year. Aluminum prices as of October 2022 were down by 39% since March, and the shortage of ammunition appears to be slowing down as well due to the deflation in commodities. This serves to benefit Sturm, Ruger & Company, Inc. (NYSE:RGR) as not only will it see its margins improve if the trends stick, but more of its product will also be available to customers that were previously unable to make their purchases.
Sturm, Ruger & Company, Inc. (NYSE:RGR) also pays a 70 cent dividend for a strong 5.27% yield. By the end of this year's second quarter, 14 out of the 895 hedge funds polled by Insider Monkey had invested in the firm.
Out of these, Jim Simons' Renaissance Technologies is Sturm, Ruger & Company, Inc. (NYSE:RGR)'s largest investor. It owns a $70 million stake that comes courtesy of 1.1 million shares.
Along with DICK'S Sporting Goods, Inc. (NYSE:DKS), Olin Corporation (NYSE:OLN), and Axon Enterprise, Inc. (NASDAQ:AXON), Sturm, Ruger & Company, Inc. (NYSE:RGR) is a hot gun stock that is worth looking at before 2022 comes to an end.
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Disclosure: None. 9 Best Gun Stocks to Buy In 2022 is originally published on Insider Monkey.
