According to a recent report by DA Davidson, the firearms industry is thriving. The report included several positive notes on the space.
NICS Data
The National Instant Criminal Background Check System (NICS) gives analysts an indication of the strength of the firearms industry by providing monthly data on the number of background checks performed on potential firearm buyers.
February 2015 was the second strongest February on record, as more than 1.28 million background checks were performed in the month.
This number represents a 1.3 percent year-over-year (Y/Y) increase and follows an 8.5 percent increase in January and a 7.5 percent increase in December.
Total growth for calendar 4Q14 was up 5.0 percent Y/Y.
Firearm Sales Numbers Down
Despite the promising NICS data, analysts are predicting negative firearm sales growth in 1Q15 in dollar terms due to manufacturer-sponsored discounting.
Even though growth in unit sales numbers decelerated in February compared to January, analysts believe that comps and investor sentiment will continue to improve for Cabela's Inc CAB and Sportsman's Warehouse Holdings SPWH.
Location Tracker
February is a seasonally slow time for new store openings, and neither Cabela's nor Sportsman's Warehouse opened any new stores in the month.
Analysts believe that new store openings by competitors will remain a "manageable headwind" for the two companies.
Trading Ideas
DA Davidson has Buy ratings on the stocks of both Cabela's and Sportsman's Warehouse, and $63 and $13 price targets respectively.
In addition to DA Davidson's two picks in the space, investors are likely considering bigger players like Smith & Wesson Holding Corp SWHC and Sturm Ruger & Co Inc RGR.
Smith & Wesson is trading up more than 10 percent after the company's Q4 earnings beat, while Sturm Ruger stock is already up an incredible 55 percent so far in 2015.
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