Sturm, Ruger & Co. Earnings: Is the Arms Race Over?

In the following video, Motley Fool consumer goods analyst Blake Bos tells investors that, while Sturm, Ruger & Co. (NYSE: RGR  ) did beat estimates, it's a lot more important for understanding the company in the long-term to take a look at the internal metrics. He talks about the company's ability to expand its sales and revenue, and grow its margins, and return a lot of that excess cash to shareholders through dividends rather than share repurchases. He also tells us that the company still struggles with supply shortages. He then takes a look to the future and informs us that this insane demand will eventually taper off, and what investors should do when it does.

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  • Report this Comment On March 01, 2013, at 2:38 PM, adamw135 wrote:

    Thanks for this analysis. I think that the massive increase in sales from 2009 to 2012 will probably not continue. This is not a fast growth company in a fast growth industry per se. What we have seen is incredibly fast growth due to certain geo-political situations. If you're modeling this you have to consider a reversion in sales trends. They have to revert back to manageable levels at some point. I also think that the sales fall-off will happen faster than anticipated.

    If that happens a few years years out and we assume that sales end up at a point based on reasonable sales growth from a more normal level, say from 2008. Growing at 5% we arrive at expected sales of ~278 million in 2016/2017. So, I'm assuming 0% sales growth in 2013, -5% sales growth in 2014, and -25% sales growth in both 2015 and 2016... this is from the 2012 level of 491 million.

    Growing at 3% from here for the next few years we discover a few things: (also assuming margins stay around past five year averages). NOPLAT and FCFF stay positive. RGR is still creating an ROIC above my expected WACC of 11%. And, mind you, ROIC has decreased dramatically from 2012 numbers.

    However, and this is big however, if we create the decreasing sales trend noted above rather than straight line forecasts from today's values, we find that the intrinsic value of RGR is probably closer to $20/share. If simply straight lined we find that RGR is closer to $60 per share. This is a big difference. This difference may not be noticed is caught up in the 'mania' and may lead to investor mistakes.

    I currently own RGR and I am considering selling in the next few months. I own it at a cost basis above my estimated fair value of 20/share based on an infinite holding period. I would not be hesitant to pick this company up again when they're trading closer to 20.

  • Report this Comment On March 01, 2013, at 2:57 PM, merlin458 wrote:

    All of the modeling and analysis fails to take into account the move by gun owners to continue to accumulate guns. This will continue at a rapid pace for quit some time as the debates continue.

    At the same time, the quality of the guns maufactured by Sturm, Ruger are exceptional. They also have pieces that are well positioned among gun enthusiasts and are in great demand. They sell out faster than they can be re-stocked. This demand is not going away in the near or even longer term.

    I also believe that the company's lack of debt and good sound management has them poised to continue their record setting pace for several years to come.

  • Report this Comment On March 04, 2013, at 12:01 PM, adamw135 wrote:


    Your comment suggests that RGR will grow over the long-term (what is long-term? 5 years?) at the rates we've recently seen. That past 5 year growth is ~20% per year. At 20% CAGR that means they double the amount of sales every 3.5 years. At 16% sales - which is what the forecasts are saying means they double sales every 4.5 years.

    That is for a company steadily grew sales at 6% before all this political nonsense happened.

    I feel it is very unreasonable for you to think that 'demand is not going away in the near or longer term' based solely on people accumulating guns. That means consumers (existing) are doubling the amount of guns they own every 5 years? I can see why someone who owns 1 gun would buy a 2nd one. But I fail to see why someone who owns 2 or 3 or 4 guns would increase their ownership to 4 or 6 or 8 guns. These things are NOT cheap.

  • Report this Comment On March 05, 2013, at 9:43 AM, beefangusbeef wrote:

    Looking back to 2008 you will find dozens of these articles by the Fool, "OMG, gun buyz over".... I guess the more you repeat something the higher the chance it will come true?

    At least another 4 years of increased sales. Analysis fails to take into account socio-economic and political factors. You cannot look at something like firearms in a vacuum any more than a defense company (w/regards to sequestration).

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9/30/2016 1:20 PM
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Sturm, Ruger and C… CAPS Rating: ****