The Most Bullish Indicator I’ve Ever Seen for Gun Stocks

I have been pounding the table on gun stocks. The valuations are trading near all time lows. Demand was pulled forward from COVID fears and just never recovered. But that is why the opportunity exists. When valuations get this low, things start to happen, and when those things happen, whatever they are, valuations can rapidly move to the upside.

The first indication of things beginning to happen was following the Charlie Kirk assassination. I started posting on X that Google Search trends for concealed carry and buy gun began to skyrocket.

Then there were other online anecdotes such as big X accounts telling their followers to buy a gun. Or an online news report in Bucks County, PA that said concealed carry permits have spiked 300%. And then in Prairieville, LA, gun shop owners said the recent spike in violence could be spiking demand. Finally, you had big tech influencers posting photos of their concealed carry.

The thesis I had was simple:

• Gun stocks are at all time lows and buying at the current valuation has a strong margin of safety.

• The United States is near all time highs with political unrest which will lead to more demand.

• More demand for guns leads to higher operating margins and a re-rate in valuation.

Then last night my thesis on guns stocks was more than solidified. In fact, the event that occurred, made me double down on my holdings, on a specific name. This even is so significant that I think demand is even higher than I thought following the Kirk shooting, or there is about to be a wave of consolidation.

And the best part? Wall Street is completely asleep at the wheel. I have not seen a single person talk about this event. Google hasn’t even picked it up. Which gives me an informational edge to act and really back up the truck.

After the market close yesterday, Beretta Holding S.A. filed a 13D on Strum, Ruger & Company RGR 0.00%↑ with an ownership level of 1,250,100 shares or 7.735% of the entire company. This is a $45.9 million position for Beretta and in the document it stated the company bought RGR using their excess working capital. Of even more significance, this is not a passive investment for Beretta, but an active investment, hence the 13D and not 13G. Beretta stated the following in their filing:

The Reporting Person acquired the Shares of the Issuer, which represent 7.735% of the Issuer's outstanding common stock, based on the Reporting Person's belief that the Shares represent an attractive investment opportunity within the industry. The Reporting Person anticipates engaging in discussions with members of the Issuer's management and the Issuer's board of directors regarding the Issuer's business, industry developments, and potential areas of operational and strategic collaborations. The Reporting Person does not have a present intention of seeking control of the Issuer. The Reporting Person intends to continuously evaluate its investment in the Issuer. Depending on various factors, including, but not limited to, the Issuer's financial performance, industry conditions, market prices of the Shares, general economic and market conditions, and other relevant considerations, the Reporting Person may, from time to time and at any time, take such actions with respect to its investment as it deems appropriate. These actions may include, without limitation, (i) acquiring additional Shares or other securities of the Issuer, (ii) disposing of some or all of its holdings, (iii) entering into hedging, derivative, or other risk management transactions with respect to its positions, or (iv) engaging in discussions with third parties.

If you don’t read any further here is the quick takeaway. Either Beretta sees and increase in demand from gun sales internally and wanted to take a position in a cheap gun stock to flip out of it, or they want to consolidate the industry even more than they already have and decided that buying $45.9 million of Strum, Ruger & Company was the best way to do this. Or it is a mixture of both.

But what makes this equity position even more interesting is that Beretta has been doing many acquisitions over the past decade and now they are the largest gun company in the world, and it appears they want to continue to do acquisitions.

In an article published earlier this Spring, titled How This 16th Century Gunmaker Keeps Reinventing Itself, readers can get a quick glimpse into what Beretta has been doing and what their future looks like. Here are some interesting portions of that article.

• “This is our biggest acquisition yet,” says Beretta Holding CEO Pietro Gussalli Beretta, 63, a 15th-generation descendant of the Beretta founders. Since joining the family business four decades ago and becoming CEO in 1995, Pietro has helped remake the 499-year-old, family-owned company by scooping up firms making everything from rifles to luxury clothing.

• The Ammotec deal, for one, added $600 million to Beretta’s annual sales, helping it overtake Sig Sauer and Smith & Wesson and added several NATO militaries to its roster of customers. Beretta is now the world’s largest firearms company, with $1.7 billion in revenues in 2024.

• After falling in 2023, Beretta Holding’s EBITDA (earnings before interest, taxes, debt and amortization) rebounded 2% to $245 million in 2024—more than triple that of its publicly-traded rivals Sturm, Ruger & Co. and Smith & Wesson. Forbes estimates Beretta Holding, which is 100% owned by Pietro, his 87-year-old father Ugo and his brother Franco, 61, is now worth $2.2 billion. Add in the family’s prized vineyards, homes and investments and the trio share an estimated $2.7 billion fortune.

• “We had funds to spare and we decided that if we wanted to make more acquisitions, we had to become more organized,” he recalls.

• “You'll continue to see more consolidation in the space as people coalesce around known entities,” says Lake Street’s Smith, pointing to the loyalty commanded by Beretta and its subsidiaries among their longtime customers, even after the firms are acquired. “You know what you're getting with Beretta.

• “We have something that others don't, and that they'll never have: a single family owner,” he says, noting how other storied firearms families sold out or took their firms public. “When we need to deal with foreign governments, it's me or my brother meeting the president. That's not the case with other businesses. We have a long-term vision that isn't speculative.”

I encourage everyone to read that Forbes article on the Beretta family. They are executors and stewards of capital. And now it appears they have the balance sheet and appetite to do further acquisitions.

The recent equity position in Strum, Ruger & Company is extremely material and it appears that Wall Street is asleep at the wheel. No one is talking about this. And the stock still screams cheap, even following the recent move up in the stock price. The enterprise value is something like $550 million and in a normalized period Strum, Ruger & Company should generate $100 million plus of free cash flow.

Here is my full writeup on Strum, Ruger & Company if anyone wants to read it.

This Beretta deal is significant. There is a good chance they try to make a play for the entire company. A private gun company buying a public gun company is the most bullish indicator I have ever seen.

Disclosure: I am long Strum, Ruger & Company $RGR. This is not investment advice. I am not an investment advisor. Do your own research.