Pretty much every walnut tree is going to have either knots, bark inclusions, or other flaws in the wood. But we don't see these things in gun stocks very often because the guys who sell good quality blanks to factories or individuals go out of their way to lay out the blank in a manner that leaves the flawed wood on the scrap pile.
Having cut walnut slabs into stock blanks, I can assure you that the scrap pile is much larger than the pile of good, usable blanks. I do not believe that the knot in the stock you are asking about would not have been apparent until final turning of the blank. But it also has good grain flow through the wrist, nice figure in the butt, and appears nearly quarter-sawn, so it was certainly good for a gun stock.
However, there is obviously also some market for less than perfect wood. So we see a good number of blanks and finished stocks that are less than perfect, especially in lower grade guns. These blanks sometimes require minor filling of voids or inclusions, and they are priced lower accordingly. In general, you get what you pay for when buying blanks. But if some buyers are willing to pay good money for firewood, there will always be someone just as willing to take their money.