Brazilian gunmaker Taurus Armas’ preferred shares (BVMF: TASA4) closed at R$ 8.95 on October 13, up about 91.6% from the end of 2025. The stock had more than doubled by October 9, when it closed at R$ 9.40, recovering from a steep decline the previous year.

The election trade rests on hopes that a change of government in Brazil could ease local gun regulations and improve trade relations with the United States. Second-quarter net profit rose 193.4%, although a one-off tariff refund accounted for much of the earnings rebound.

The earnings rebound depends on a tariff refund

Taurus reported second-quarter EBITDA of R$ 124.8 million, up 153.7% from the same period in 2025. The result included R$ 91.1 million from a US tariff refund.

Excluding that refund leaves EBITDA of R$ 33.7 million, about 31.5% below the R$ 49.2 million reported a year earlier. This calculation removes a single item and is not an official recurring EBITDA figure.

Gross margin improved from 28.2% in the first quarter to 34.2% in the second, separate from of the refund, which was recorded outside gross profit. It remained below the 38% margin achieved a year earlier. The refund also supported first-half cash generation and debt reduction, but does not provide a recurring source of cash.

US exposure and the new tariffs

The United States accounted for 76.2% of Taurus's firearms and accessories revenue in the second quarter. That concentration leaves the company heavily exposed to US trade policy. In July 2026, additional tariffs on Brazilian goods rose to a combined 37.5%: a 25% measure plus a 12.5% levy that replaced an earlier temporary rate of 10%.

The duties apply to the customs value of an import, rather than its final retail price. For a Brazilian pistol classified under tariff code 9302.00.00, the base duty of 3% plus US$ 0.14 per unit brings the combined charge to 40.5% plus US$ 0.14, assuming no exemption or special treatment. This is a calculation from the published rates, rather than an effective tariff measured across Taurus's product range.

Manufacturing and assembly in the United States can reduce exposure to imports of finished firearms. Brazilian kits and components imported into the country remain subject to the applicable classifications and duties. How Taurus manages those costs will affect its margins heading into 2027.

Election expectations face legislative hurdles

Taurus has attracted buying as a proxy for Brazil's election. A Money Times report cited Marcos Saravalle, chief investment officer at Krivo Capital, describing the potential benefits of a Flávio Bolsonaro victory for domestic demand and US tariff negotiations.

In Brazil, the thesis includes the possible repeal of the Disarmament Statute. Bill 3,931/2025 proposes that change, but an electoral victory would not guarantee its passage or an immediate rise in sales. The US argument depends on closer relations between a new Brazilian government and Washington leading to tariff relief. Political alignment alone does not secure customs exemptions.

The rally also took place during a broader rise in Brazilian equities. Taurus gained about 9.6% in the week ended October 9, while the small-cap index climbed more than 20%. Those moves make it difficult to isolate how much of the stock's advance came from expectations specific to the company.

Overseas expansion ties up capital

Taurus is expanding in India and pursuing projects in Turkey and unmanned military vehicles. Those initiatives require capital before their full contribution to earnings and cash flow becomes clear.

The Indian joint venture secured contracts for more than 11,000 pistols this year and reported about R$ 14 million in first-half revenue. It also held R$ 42.8 million in deposits and guarantees, illustrating how institutional contracts can tie up money before delivery, acceptance and final payment. Taurus owns 49% of the venture, so its revenue is not fully consolidated into the Brazilian company's accounts, and receipts in India do not automatically reach Taurus's cash balance in Brazil.

The other projects are harder to assess financially. Taurus disclosed a non-binding proposal in April to acquire control of Turkish manufacturer Mertsav, without a final price or transaction structure. The proposal does not establish a completed acquisition. A September announcement on unmanned military vehicles described possible funding sources but provided no final budget or specific financing agreement for that business. Investors therefore lack the figures needed to estimate the total capital required for these projects.

Export credit and the next earnings test

On September 25, Taurus's board approved an increase in its export credit limit with state-owned bank Caixa, from R$80 million to up to R$ 100 million. The facility could help finance production and the export payment cycle. It requires financial investments equivalent to 15% of the approved limit as collateral, alongside other contractual guarantees. Board approval does not establish how much has been drawn or is immediately available.

Third-quarter results, scheduled for November 10, will provide the next evidence of how the new tariffs are affecting margins and whether orders are translating into cash.