Ruger Shoots Low

Sturm, Ruger's (NYSE: RGR  ) latest rifles may offer a high-velocity, .204-caliber cartridge that keeps the bullet from dropping off, but the company can't seem to flatten the trajectory of its sales and earnings curves.

On the heels of years of decline, the firm put up another first quarter of sinking revenues, inking $40.2 million, down 2% compared with $41.1 million in the prior-year period. Revenues for both the gun business and the casting business -- which produces products like golf club heads -- fell off. Earnings took a bigger dive, shedding 18% from the first quarter of 2003 to reach $0.14 per share.

In the face of this long, slow, earthward spiral, it's difficult to guess why Ruger's share price hovers just below its 52-week high of $13.97, or why it has appreciated 60% over the trailing year's low. Why are investors putting a P/E ratio of 31 on a firm with such dubious prospects?

Sure, the balance sheet remains debt-free, but the firm is also painfully free of free cash flow, and over the past several years, the tasty-looking dividend has consumed much more cash than the company could generate through operations. Sturm, Ruger bears all the corporate symptoms of chronic wasting disease.

Sure, sometimes it is fun to own stock in companies that produce a product you enjoy, but gun fans would be wise to stay away. And while they're at it, they should avoid Smith & Wesson Holding (AMEX: SWB  ) with even greater prejudice. It trades with the pennies, and recently appointed a board chairman who was an acknowledged armed robber. He quit that post, only to remain on the board.

Looking for companies that can afford to pay their dividends? Try Mathew Emmert'sMotley Fool Income Investorfree for 30 days.

Fool contributor Seth Jayson owns a couple of Ruger firearms, but no shares of any company mentioned above. View his Fool profile here.


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