NICS: Wrapping Up 2018, Starting 2019

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Includes: AOBC, RGR, VSTO
by: Maks F. S.
Summary

FBI finally released December 2018 NICS data, after a delay due to government shutdown.

The numbers showed an as-expected year over year decline.

January 2019 data, however, presented a pleasant surprise, showing a small increase over 2018.

We take a deep dive into the data and examine a few likely causes.

Do not see any material changes for the publicly traded stocks - Ruger, American Outdoor Brands, and Vista Outdoor - as a result.

Source: Author's rifle, performing tests.

A few weeks ago, prior to leaving for Shot Show 2019, I wrapped up our NICS series for 2018 with the information we had on hand. Due to the government shutdown, NICS data was not published for the month of December. Fortunately, the FBI has finally released the December 2018 data along with January 2019.

So how did it turn out?

2018 NICS Data

If you recall, in my last article I wrote:

Once the December data gets reported, I suspect that 2018 will end up being the worst year for transaction related background checks since 2012, ending up around 12 million background checks.

Source: Shot Show 2019: What Did 2018 NICS Data Show?

I was off, slightly.

Accounting for the month of December, the combined "adjusted" background checks as per my methodology was 12,244,031. This was just 7,679 more than the 2014 number, therefore not quite the lowest in the decade, but the second lowest since 2012.

Source: FBI NICS Data, compiled by Author

As expected, the handgun data was okay.

For the month of December, there were 712,365 handgun related NICS checks. This is down from 784,267 a year earlier, and the lowest since 2013.

Source: FBI NICS Data, compiled by Author (December 2018 vs Prior Decembers)

Adding the December handgun checks to the full year totals brought the total handgun checks to 6,576,111. This is down from 7,226,979 a year earlier, and the lowest since 2014.

Source: FBI NICS Data, compiled by Author (2018 vs Prior Years)

This I believe is a very good representation for "new shooters" as generally a handgun is going to be a gun owner's first firearm. Despite the Parkland Florida shooting, we were still at 4 year lows.

Looking at Long Gun data turns fairly depressing.

For the month of December, there were 640,496 Long Gun related checks. This is down from 697,785 a year earlier and was the worst year since 2009!

Source: FBI NICS Data, compiled by Author (December 2018 vs Prior Decembers)

For the full year 2018, long gun checks came to 4,916,533, down from 5,234,757 for 2017, and the lowest total since 2010.

Source: FBI NICS Data, compiled by Author (2018 vs Prior Years)

One thing that I HAVE TO point out before someone else does: There has been a continual increase in the "other" category. This would be for firearms that are considered neither long guns or handguns. This would include "other weapons" such as AR15 Lower Receivers and the newly launched trend of short gripped shotguns like the Mossberg Shockwave.

Source: Mossberg

As a result, "other" checks increased from 399,993 in 2017 to 494,299 in 2018.

Combined, however, we still have the same gloomy picture.

So... why is that?

As we discussed before, the general consensus is the following.

Increases in Handgun checks are going to represent new shooters. Increases in long gun checks, however, generally represents the "panic buys" we generally see after a mass shooting, such as the various school shootings seen over the past 8 years.

If not for the Parkland Florida shooting in 2018, the numbers would look far worse.

I believe, as discussed in previous articles, the market is fully saturated from all sides.

After the initial response to the Sandy Hook shooting that sent entry level AR-15 rifles to over $1,500, the market has been littered by excess capacity now looking for something to produce.

Beyond the capacity, there is also a glut of existing inventory waiting to be completed or shipped.

Most of all however, thinking about this logically, I would venture to guess that most of the "fear/scare purchases" have already been completed and behind us. (and why subsequent mass shootings have created smaller spikes)

After all, "If someone went out and bought 10 AR-15 rifles and 50 AR-15 receivers in response to Sandy Hook, aren't those same rifles and parts the very same safety buy for every other shooting that followed?"

Generally speaking, guns are a durable good and do not rust, except for the millions of guns lost annual in boating accidents, particularly in states like California, New Jersey, New York, Connecticut and Massachusetts. (This is a gun joke.) By now, the the people who are running out to buy more "just in case" guns are newer gun owners who had not yet stocked up.

So is there any proof?

One of my favorite things to do as part of topic research is to look at Google's Search Trends.

I believe by looking at search trends for commonly searched terms, we can have some more clarity into whether or not people are interested in the topic.

What is one of the first things a NEW gun owner going to look up how to do? How about how to clean a gun?

Source: Google Trends

As we can see, the peaks have been trending down, fairly consistently with the NICS data we saw earlier.

Searching for "shooting classes" gives us just as stagnant results.

Source: Google Trends

Perhaps one thing that is helping the handgun numbers and hurting long gun data is one of the big trends of 2018 which we discussed in "Shot Show 2019: Missed Trends Of 2018," AR-15 Pistols, utilizing a "pistol brace" instead of a stock.

Does Google agree?

Source: Google Trends

I would think so.

Starting 2019

The above trends may have perhaps started playing out in the January 2019 numbers.

All things considered, there was some good news for NICS data at the start of the year.

For January 2019, the FBI reported 514,319 handgun checks. This is up from 501,638 handgun checks in 2018, or an increase of 2.5% The numbers are still down from 2015-2017.

Source: FBI NICS Data, compiled by Author (January 2019 vs Prior Years)

Long gun checks were also up marginally.

For January 2019, long gun checks increased to 345,768, from 337,597 a year earlier, an increase of 2.4%.

Source: FBI NICS Data, compiled by Author (January 2019 vs Prior Years)

Combined, January 2019 saw 925,516 background checks adjusted by my methodology. While this is up from 892,956 for January 2018, it is still down from 2015, 2016 and 2017.

Source: FBI NICS Data, compiled by Author (January 2019 vs Prior Years)

Of course, clear as day was the massive response in 2013 after December 14, 2012 Sandy Hook shooting, and the second smaller peak in 2016 after the December 2015, San Bernadino, CA shooting.

So why the small up-tick in 2019?

There are a few possible reasons that I can think of.

First, as we know, the House of Representatives has turned to Democrat controlled. Almost immediately, new anti-gun legislation has been introduced. Despite very little chance of any of those bills passing (considering the Senate is not likely to take them up nor is President Trump likely to sign any of them), we can never pass up a chance to buy some more guns.

For a first look at "hysteria driving sales," one merely needs to look at the Oregon bill written by school children for a project and the fear it instilled in gun owners. (The bill would limit magazines to 5 rounds and would limit the amount of ammunition to 20 rounds per month.)

Secondly, Glock has done a better job timing its product introductions. In fact, after publicly discussing the Glock 43X and Glock 48 models, the gun was available for delivery by the time Shot Show started!

To that, we can add the bigger growing trend of AR-15 pistol and we have some extra sales.

Lastly, REBATES and Discounts!

Yep, companies are back at it.

Vista Outdoor (VSTO) has pushed MASSIVE rebates on ammo that brought prices to decade lows.

Companies like American Outdoor Brands (NASDAQ:AOBC) and Ruger (NYSE:RGR) also had January buying shows with meaningful discounts, filled with Buy X Get Y free deals, which have continued to prices down even further.

For all of these reasons, the 2.5% or so year over year increase becomes plausible.

What is more important, however, is to see if this trend holds up and at what prices those increased transactions occurred at.

In either case, for longer term investors, this should be hopeful news. Perhaps, just perhaps, this is the first step in establishing a new base?

I hope this was helpful and look forward to your comments!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.