Why Sturm, Ruger's Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of gun maker Sturm, Ruger (NYSE: RGR  ) were getting shot down by investors today, falling as much as 14% in intraday trading after the company reported second-quarter results.

So what: It was widely expected that Sturm, Ruger would have a great quarter. The company did even better than those expectations. Sales for the quarter were $120 million, up from $80 million a year ago. Earnings per share, meanwhile, soared 63%, to $0.91. Wall Street analysts had estimated EPS of $0.80 on $107 million in revenue.

Now what: Why in the world would investors be selling after those results? One possibility is that there is some "buy the rumor, sell the news" going on. The company has caught a nice tailwind, and it's been no secret that sales have been especially brisk -- over the past year, the stock's been bid up substantially, rising 67% even after today's drop. Some investors may be pocketing their gains on the supposition that they've done well and the good times won't continue.

That said, looking at this quarter, there's every reason for long-term Sturm, Ruger investors to be quite happy with it. Of particular note was that the company highlighted a strong sales contribution from its new products. That's a sign that it's doing exactly what a healthy, successful business needs to do -- make products that its customers want.

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