The political push for new gun control measures continues to spur heightened demand for firearms. My company, Pipeline Data, estimates that February data will show there were 2,200,000 background checks done through the FBI's National Instant Criminal Background Check System (NICS).
This number will represent just a slight decline from the 2,495,000 checks performed in January. That was the second highest total on record (December was the highest with 2,784,000 checks). If accurate, February's figure will represent a 26% increase over February 2012, exceeding the 19% growth rate for all of 2012.
If you think this is bullish for Sturm, Ruger & Co (RGR) and Smith & Wesson Holding Corporation (SWHC), hold your horses - there's a little bear in the room.
As you can see from the chart below, annual growth fluctuated throughout the year until September. After that month's 16% increase, growth steadily accelerated for several consecutive months. October came in at 20%. November's growth was 31%, followed by a 49% increase in December.
NICS Background Checks
2011 | 2012 | Growth | |
JAN | 1,323,336 | 1,377,301 | 4% |
FEB | 1,473,513 | 1,749,903 | 19% |
MAR | 1,449,724 | 1,727,881 | 19% |
APR | 1,351,255 | 1,427,343 | 6% |
MAY | 1,230,953 | 1,316,226 | 7% |
JUN | 1,168,322 | 1,302,660 | 11% |
JUL | 1,157,041 | 1,300,704 | 12% |
AUG | 1,310,041 | 1,526,206 | 17% |
SEP | 1,253,752 | 1,459,363 | 16% |
OCT | 1,340,273 | 1,614,032 | 20% |
NOV | 1,534,414 | 2,006,919 | 31% |
DEC | 1,862,327 | 2,783,765 | 49% |
Totals | 16,454,951 | 19,592,303 | 19% |
2013 started where 2012 left off. In fact, January's 2.5 million checks represented a climactic 81% spike over January 2012. But as you can see in the following chart, we believe February's data will show a precipitous deceleration in growth:
NICS Background Checks
2012 | 2013 | Growth | |
JAN | 1,377,301 | 2,495,440 | 81% |
FEB | 1,749,903 | 2,212,855 | 26% |
Equally troubling news can be seen in the chart below. It depicts January-to-February growth going back to the year 2000. It may come as a surprise to many, but February is usually a stronger month for background checks than January. We believe that changed this year. If we're right, February will be a weaker month than January for the first time since the turn of the century.
NICS Background Checks
YEAR | JAN | FEB | CHANGE |
2000 | 639,972 | 707,070 | 10% |
2001 | 640,528 | 675,156 | 5% |
2002 | 665,803 | 694,668 | 4% |
2003 | 653,751 | 708,281 | 8% |
2004 | 695,000 | 723,654 | 4% |
2005 | 685,811 | 743,070 | 8% |
2006 | 775,518 | 820,679 | 6% |
2007 | 894,608 | 914,954 | 2% |
2008 | 942,556 | 1,021,130 | 8% |
2009 | 1,213,885 | 1,259,078 | 4% |
2010 | 1,119,229 | 1,243,211 | 11% |
2011 | 1,323,336 | 1,473,513 | 11% |
2012 | 1,377,301 | 1,749,903 | 27% |
2013 | 2,495,440 | 2,212,855 | -11% |
Make no mistake - 2.2 million background checks are nothing to sneeze at. With a hefty backlog of firearm demand, RGR and SWHC will be busy for some time to come. However, stocks are often swayed by momentum and expectations. We believe that February's figures will show that momentum took a breather. If the consensus called for something more, both stocks could come under pressure with the release of the FBI's official figures, which should be imminent.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
