A July 27 Wall Street Journal editorial endorsing legislation protecting gun manufacturers from liability suits falsely suggested that firearm manufacturer Smith & Wesson has seen its stock prices suffer due to "legal uncertainty." In fact, Smith & Wesson's stock prices have steadily increased over the past four years despite numerous lawsuits, even as the stock market as a whole declined.
While Smith & Wesson, the gun company that the Journal mentioned by name, has fared well in the stock market, the stock of Sturm, Ruger & Co., Inc., the only other publicly listed U.S. gun manufacturer, has more closely mirrored the ups and downs of the market over the last four years.
The Journal editorial praised the Protection of Lawful Commerce in Arms Act, to be introduced in the Senate, which would "prohibit civil liability actions from being brought or continued against manufacturers, distributors, dealers, or importers of firearms or ammunition for damages, injunctive or other relief resulting from the misuse of their products by others."
The Journal deemed such lawsuits an "abuse of the legal system" and bemoaned the financial strain they have placed on the firearms industry:
Gun makers have yet to lose a case, but these victories have cost more than $200 million in legal bills. This is a huge sum for an industry collectively smaller than any Fortune 500 company and that supports 20,000 jobs at most. Publicly listed companies such as Smith & Wesson have seen the legal uncertainty reflected in their share price. Money for legal fees could be better spent creating new jobs, researching ways to make guns safer, or returning profits to shareholders.
Despite the Journal's implication that Smith & Wesson's stock (SWB) has suffered, its stock price has actually increased steadily over the past four years -- from less than $1 per share through most of 2001 to nearly $5 in July 2005:
(Saf-T-Hammer Corp. acquired Smith & Wesson from Tompkins PLC in May 2001; the company is now known as Smith & Wesson Holding Corp.)
This steady increase occurred even as Smith & Wesson dealt with numerous lawsuits. Smith & Wesson's 2004 annual report noted: "In addition to certain other pending litigation to which we are a party, we are a defendant in approximately 16 lawsuits involving our products and are aware of certain other such claims." According to the report, these included "lawsuits brought by cities, municipalities, counties, and individuals (including certain putative class actions) against numerous firearms manufacturers, distributors, and dealers seeking to recover damages allegedly arising out of the misuse of firearms by third parties in the commission of homicides, suicides, and other shootings involving juveniles and adults."
Smith & Wesson's stock continued to rise even as standard measures of overall market performance, such as the Dow Jones Industrial Average and the Standard & Poor's 500 Index (S&P 500), reflected flat or declining stock prices.
The following chart demonstrates Smith & Wesson's performance in the stock market over the past five years, as compared with the Dow Jones (DJI) and S&P 500 (GSPC) market indicators:
By comparison, this chart demonstrates how Sturm, Ruger & Co., Inc. (RGR) has performed compared to the Dow Jones and the S&P 500: