Guns and Gun Stocks

[Saluki]

I have a mid size position in SWBI, which is up about 23% in year plus a 4% dividend.  Normally that would be great, but when everything is compared to the magnificent seven tech stocks, it's just okay. But I visited a gun store recently and asked a million questions and I'm wondering if I should sell and move on. 

 

The reviews are great for SWBI's popular Shield Plus and they seem to well liked by police departments (along with Glock and Sig Sauer) and civilians because their reliability, ease of use, compact size and price.  In looking at different models, I was surprised at how similar they are in feature and feel (i didn't fire them, so maybe their are differences in recoil). The SWBI and Glocks and Sigs are least $100-200 over budget reliable models like Taurus. That's one of the reasons I liked S&W. With the increase in new shooters as a result of the pandemic riots and increase in crime in many cities, I thought NEW gun owners would favor brands that they have heard of like S&W, Glock and Sig, particularly models that are used by police and military. It seems that existing gun owners are more willing to have several guns for different purposes and more willing to buy niche brands. 

 

My realization for a possible bear case is that although SWBI has great margins from being able to charge more for gun that has the same parts and manufacturing methods as other guns, and that they should be able to recognize better margins from the new factory and also from spreading the development costs of new models across a larger number of sales, it seems like a great combo but there is a catch. 

 

I saw a LOT of Glock clones, some which even take the same magazines as Glock. Since the original Glock came out in the 1980s, the patent expired and anyone can make something that looks and works just like it for a fraction of the price.  Ditto for the ubiquitous AR-15.  Unless they come out with another game changer pistol, in less than a decade there will be knockoff Shield Plus clones for $1-200 less that S&W will have to compete with. 

 

So while a lot of the gun companies have been around for a LOOOooooong time, the new entrants keep popping up on the low and high end, and they may eventually move to the middle with these Glock clones, or eventually with the M&P Shield clone, which came out in 2012, and should have their patent expire in 2032, I believe. S&W has been around since the 1800s and Berretta has been around since the 1500s, but if you can make a decent gun using tech that was available in the 1800s, it shouldn't be too hard to make them now with more modern equipment. 

 

Glock cranked out his first guns on old soviet metal stamping machines that he was using to make curtain rods, furniture handles and knives. On the high end, Benelli, which makes racing motorcycles, started making high end shotguns.  Diamondback, which makes racing boats, started making revolvers a couple of years ago, and now a pistol.  So if the new entrants in the premium market decide to come out with middle market stuff (like TESLA coming out with a lower end car) or the new entrants in the lower end (Diamondback, Kahr, Rock Island, Palmetto State, Taurus) develop a reputation for quality, maybe the brand recognition of S&W or Glock won't be something that they can charge as much for in the future. 

 

I've looked into the liability issue, and I think it's not worth worrying about.  Since the recent federal law change, there has been no gun company that has been successfully sued for a mass shooting. 

 

Any thoughts from the members, particularly if you are a gun guy, unlike me?  What are you opinions of the guns that non-gun guys wouldn't have heard of?  

[rkbabang]

I think brands like S&W, Glock, Ruger, SIG, etc. will always command a premium over cheaper built guns.  Firearms are a dangerous product.  You are literally lighting an explosive powder on fire in your hands.  Companies who have a long tradition of making safe, reliable, long lasting firearms will be more trusted over the cheaply priced newcomers.  Most gun guys have many firearms in their collection and are willing to pay up for quality.  Most new inexperienced gun owners will be drawn to brands who's names they recognize.

 

Their will always be the people who buy the cheapest because that's all they can afford, and there will always be the hobbyists who buy expensive boutique custom guns or build them themselves (something that is getting much easier to do by the year).   But for the average gun owner an extra $100-$300 for a quality name brand firearm isn't going to bother them.

Edited February 8 by rkbabang

[Ulti]

26 minutes ago, rkbabang said:

But for the average gun owner an extra $100-$300 for a quality name brand firearm isn't going to bother them.

Totally agree…. Recently tried out about 10 different 9mm handguns and went with a Sig… felt the best and my luck, the most comfortable and expensive… And don’t forget , manufacturers make$$ from a variety of add ons 

[Saluki]

12 minutes ago, rkbabang said:

 

 

Their will always be the people who buy the cheapest because that's all they can afford, and there will always be the hobbyists who buy expensive boutique custom guns or build them themselves (something that is getting much easier to do by the year).   But for the average gun owner an extra $100-$300 for a quality name brand firearm isn't going to bother them.

 

I agree with this up to a point.  From talking to gun people, it appears that some guns, like Kell-Tec are cheap and  look cool, but have a bad reputation for reliability, so people buy them for fun on the range, but wouldn't use one if their life really depended on it.  I've watched some "torture tests" from a vlogger, and the cheap Turkish shotguns all failed, but all the American made ones passed, except for Kell Tec.  Others like Hi-Point, are cheap, heavy and ugly but have a good reputation for reliability, so it's something that someone would buy if they didn't want to pay up.  

 

I was concerned about the possibility of premium brands, like Benelli, offering main stream stuff, or cheap manufacturers moving up the food chain.  Diamondback, like many others, started selling AR 15 clones because they are popular and no longer patented so anyone can make it.  They they made a decent inexpensive pocket pistol, then a cowboy style 22 revolver for $300.  This year they introduced a $750 revolver, which is squarely in the S&W/ Ruger/Colt target market. It appears they want to take the japanese import car approach.  Start with the motorcycles, then cheap cars, then better cars, then the premium stuff.  

 

I don't know how many people are going this route though. I'm not a gun guy so I hadn't heard of Daniel Defense until recently. But they went from zero to 200 employees and big government contracts in only 20 years. Palmetto State started in 2008 and, according to wikipedia, has 200 employees also. Is this a trend in every industry like Sir Kensington and Harry's Razors coming from nowhere and making inroads against brands like Kraft and Gillette?  I don't have a gun, but if I bought one, as you say I would rather pay $450 for a S&W than $300 for a kelltec because I would probably only want one, and I wouldn't want to take the low bid on what is essentially disaster insurance. 

 

 

[james22]

Guns, like EVERYTHING ELSE, have value tiers and are priced accordingly.

[Spekulatius]

If you buy a gun it better works when you need it . Malfunctions  with a gun are at best very inconvenient and worst case can cost your dear life, it’s not like a toaster. Seems like a no brainer to spent a bit more for something you trust will work as intended, but what do I know.

[dealraker]

14 hours ago, Spekulatius said:

If you buy a gun it better works when you need it . Malfunctions  with a gun are at best very inconvenient and worst case can cost your dear life, it’s not like a toaster. Seems like a no brainer to spent a bit more for something you trust will work as intended, but what do I know.

Use a gun in defense in my part of the country and there's a pretty good chance you'll avoid criminal court.  Civil?  Well, that's another story.

 

Finance 101.