On July 1, 2016, a stock called American Outdoor Brands (AOBC) hit an all-time high of $30 bucks a share. In case you didn’t know it, AOBC is actually Smith & Wesson, whose ownership decided to diversify the company into an outdoor sporting conglomerate basically to cover up the fact that all they really make and sell are guns. The company President, Jim Dabney, announced the new name back in December 2016 with this statement: “We believe that American Outdoor Brands Corp. is a name that truly represents our broad and growing array of brands and businesses in the shooting, hunting and rugged outdoor enthusiast markets.”
This strategy replaced an earlier strategy which had S&W marketing all kinds of consumer crap – blankets, clothing, watches, jewelry – that can now be found on eBay for a fraction of what the stuff originally cost. Once the geniuses who run S&W realized that the only thing which consumers would purchase that carried the company’s distinctive name were guns, forget about promoting the brand through other channels, let’s just buy some small companies with other brand names.
Except the problem is that consumer brands that don’t carry a high price-tag usually don’t market products that anyone really wants to buy. Ever hear of a brand called Bog-Pod? How’s about Hooyman or Old Timer? These are some of the products which the company claims will help it build a “rich, diverse product and brand offering to address new opportunities in the rugged outdoor markets.” Hey guys, stick with the guns, okay?
Actually, for a few years the boys at 2100 Roosevelt Avenue in Springfield read the handwriting on the wall correctly, marketing a cheap line of AR-15 rifles, which boosted overall revenues significantly and got the company into the expanding tactical rifle market at exactly the right time. The company first began shipping its ‘black gun’ in 2006, by 2010 they were selling more than 100,000 units each year, the other major assault-rifle manufacturers (Bushmaster, DPMS) were producing about half that number each year.
There’s only one little problem with the success story, however, which is that what goes up in the gun business can also go right back down. Which is exactly what happened to AR sales by the end of the Obama regime, if only because at a certain point everyone who wanted to own what is euphemistically referred to as a ‘modern sporting rifle’ had one sitting at home.
But gun makers are used to dealing with market saturation because, if nothing else, the things they manufacture don’t wear out. If you sell someone a droid, for example, chances are that a certain number will have to be replaced within a year or so. Selling someone one droid usually means that the manufacturer will rack up another sale. Not so with guns, which is why companies like S&W knew that at some point sales of their assault rifles would go flat.
But what S&W didn’t know, what nobody in the gun industry could predict, was the firestorm which erupted after the Parkland massacre which was aimed at the whole gun industry, but obviously is a bigger threat to companies which make black guns, of whom S&W happens to be the biggest target of all. When a global asset manager like Black Rock and a commercial bank like Bank of America announce they want to meet with gun makers to see what the industry’s response will be to what happened in Parkland, we’re not talking about the ‘arm teachers’ nonsense peddled by the White House idiot, we’re talking what counts: bucks.
What we say in the gun business is that if you want to make a million, start with two million. If you bought 50,000 shares of S&W on July 1, 2016 yesterday the joke would have come true.
Which is why S&W stock closed yesterday at under $10, the lowest price since the end of 2014. If you owned 100,000 shares of S&W on July 1, 2016 and held those shares today, your investment would have lost 2 million bucks.