The stock of firearm manufactures, Smith & Wesson (NASDAQ: SWHC), up by 6.21% to $22.74 in early-morning trading on Monday, the day after the Orlando nightclub shooting.
Fifty people, including the gunman, were killed and 53 were wounded during the attack at a gay nightclub in Orlando. Also in Orlando, "The Voice" star Christina Grimmie was shot and killed after a Friday night concert. The shooter at Pulse reportedly used an AR-15 semi-automatic rifle which is the same type of rifle was used in the Newtown, Aurora, and San Bernardino shootings.
The nation began the week mourning the 50 people killed early Sunday when a gunman wielding an assault-type rifle and a handgun opened fire inside a crowded gay nightclub in Orlando, Florida. Authorities are investigating whether the assault was an act of terrorism, a hate crime, or both. Politicians lamented the violence as tragically familiar despite its staggering scale.
For those who might see this tragedy as a huge negative signal to firearm manufactures, the boost up in the stock of Smith & Wesson is quite shocking. However, there is some logic behind this phenomenon.
Gun maker shares typically rally following mass shootings that revive the debate about tougher gun-control laws, as demand increases on concern that guns will be harder to purchase if stricter legislation is passed.
"History would suggest the more awful and tragic the event ... and as the rhetoric of gun control rises, the stocks go up," James Hardiman, Wedbush Securities analyst, told CNBC.com.
This claim appeals convincing in terms of the stock market observation as other gun makers, aside from Smith & Wesson, experienced rises in their stocks. For example, Sturm Ruger, according to CNBC, saw a 3.7 percent rise in trading Monday, following the massacre in Orlando.
The Street Ratings team rates Smith & Wesson stock as a "buy" with a ratings score of A-, not based on the news in any given day, but objectively based on its "risk-adjusted" total return prospect over a 12-month investment horizon.
Smith & Wesson's strengths such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, solid stock price performance and compelling growth in net income, is believed to outweigh the fact that the company has had somewhat disappointing return on equity.