It’s not the headline that’s supposed to accompany a conservative wave. However, Olin (NYSE:OLN) – specifically its ammunition unit Winchester – could ironically be in big trouble. Sure, Republicans and conservative-leaning voters typically support the Second Amendment. On paper, that should help Olin. However, OLN stock slipped nearly 9% last week. For the year, it’s down almost 16%.
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You might be asking the obvious question: what gives? Primarily, Olin focuses on specialty chemicals such as chlorine, caustic soda, and epoxy. The company serves a wide variety of industries, such as water treatment to agriculture to pharmaceuticals. However, it’s also dependent on the construction, electronics, and automotive sectors. As you know, there are some demand problems in these sectors.
Unfortunately, its ammo business (about 25% of Q4 revenues) just might not be able to help Olin despite a conservative jump in the polls. Following President Joe Biden’s disastrous debate performance, Republican candidate and former President Donald Trump has a relatively easy road to the White House. However, because of this reality, the fear of gun control is no longer prevalent. Thus, gun sales could decline, and that’s not good news for OLN stock. Given the political fissure, I am bearish on Olin.
OLN Stock Faces a Surprisingly Unfavorable Backdrop
If a business was geared toward conservative or, shall we say, “woke-free” talking points – social media firm Rumble (NASDAQ:RUM) comes quickly to mind – then it’s natural for such entities to want Republicans in power. Essentially, conservative leadership helps normalize right-leaning messages. However, such a framework isn’t that helpful for OLN stock and the firearms industry.
Frankly, the evidence speaks for itself. Back in 2008, following the electoral victory of former President Barack Obama, weapons dealers reported much higher sales. Further, The Washington Post stated in 2017 that Americans spent approximately $17 billion on ammunition during Obama’s two terms in office.
Other media reports – citing academic analyses – point to a significant uptick in demand for firearms following Obama’s historic presidential victory. An article by Vox mentioned that there could be other factors, such as culture and race, that may have influenced the gun-buying behavior.
Whatever the ultimate catalyst(s), the evidence again is clear: Democrats scare people who value personal freedoms, especially the freedom to buy guns. And that fear is good for business. Without that fear, OLN stock faces a tough drought.
Technically, it’s true that gun ownership soared during Trump’s presidency. Still, that was related to the COVID-19 crisis and the fear of social unrest. Sure enough, the main theme rises to the forefront: fear. Fear of being attacked, of losing control, of rights being taken away by Big Brother – whatever it is, fear represents one of the best motivating factors.
On the other hand, since Trump has long claimed that he provides the answer to Americans’ fears, there’s simply no need to vigorously arm oneself. Trump is the law-and-order guy. In his worldview, he’s going to build barriers so that bad people can’t come in. At the same time, he aims to deport lawbreakers.
Essentially, Trump is appealing to the controversial baseline concerns of many Americans. However, by addressing these concerns, OLN stock loses relevancy.
Financial Trends Not Working Out for Olin
It must be said that one factor that I previously thought would help investments like OLN stock is the aforementioned surge in firearm sales during COVID-19. With so many guns in Americans’ hands, people would need ammo to use them. However, it’s not entirely clear whether the people who bought guns out of fear transitioned to become avid shooters.
Indeed, the evidence now suggests the inverse is true. According to a study by IBISWorld, the number of shooting businesses stood at 8,588 last year. However, this figure represented a 4.4% decline from 2022. If ammo demand was so robust because people wanted to shoot their new weapons, you would expect the figure to increase or, at minimum, stay the same.
Therefore, I’m having difficulty with the bullish assessment of OLN stock. Analysts see Fiscal 2024 revenue landing at $6.97 billion, an increase of 2% from the prior year. However, following the first quarter of Fiscal 2022, Olin has only managed to beat analysts’ sales target once, in Q4 2023. That’s not very encouraging.
Yes, OLN stock is trading at 0.87x trailing-year sales. Between Q1 2023 and Q1 2024, this metric averaged around 0.94x. So, relatively speaking, Olin is undervalued. Because of the historical revenue performance combined with broader sector headwinds, though, Olin faces difficulties in reaching the consensus sales target.
Therefore, OLN stock may not be as undervalued as it mathematically appears to be.
Is Olin Stock a Buy, According to Analysts?
Turning to Wall Street, OLN stock has a Moderate Buy consensus rating based on seven Buys, three Holds, and zero Sell ratings. The average OLN stock price target is $65.20, implying 43.17% upside potential.
The Takeaway: OLN Stock Could Suffer from a Conservative Wave
Following President Biden’s disastrous debate performance, the Republicans appear to have an easy road to the White House. Theoretically, this dynamic should help Olin’s ammunition unit Winchester because of conservatives’ support for the Second Amendment. However, without the powerful catalyst of fear, the broader firearms industry faces significant demand droughts. That could mean that OLN stock isn’t as good of a deal as it may initially appear to be.
