In a banner year for firearm sales KeyBanc is downgrading major gun manufacturers, calling the pace of business unsustainable.
Shares of Sturm Ruger hit an all-time high this year and Smith & Wesson was close due in part to fears that President Barack Obama would tighten gun laws if he is re-elected. The same thing happened after Obama was first elected, though there were never any changes to gun laws.
Even recently, shares rose steadily on concerns of further regulation. After the Colorado theater shooting in July that killed 12 people, background checks within the state rose. Background checks are needed in order to buy firearms, and analysts use the numbers as a gauge gun for gun demand in the U.S.
In March, Sturm Ruger received orders for more than one million units, forcing it to stop accepting new orders until May so that it could catch up.
Shares of both companies tumbled Wednesday after a downgrade from analyst Scott Hamann of KeyBanc Capital Markets.
Hamann said that firearm background checks in May, June and July rose over 20 percent from the year before. That kind of growth, he said, will be difficult to maintain and any pullback could hurt the stocks.
Hamann downgraded shares of Smith & Wesson to "Hold" from "Buy" and downgraded shares of Sturm Ruger to "Underweight" from "Hold."
Shares of Smith & Wesson Holding Corp. fell 87 cents, or 8.9 percent, to $8.89 in afternoon trading Wednesday. Shares of Sturm, Ruger & Co. Inc. fell $2.26, or 4.7 percent, to $45.82.