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Sturm, Ruger Is Locked and Loaded

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We're armed to the teeth. America is, that is. We're buying more guns and ammo than ever before, and the gunmakers just can't keep up. Sturm, Ruger (NYSE: RGR  ) reported earnings on Monday that showed it was shooting out the lights, and not only for this quarter but probably for several quarters to come.

As the anti-gun rhetoric ratchets ever higher, Americans are rushing out to make sure they're able to protect themselves before the clamps are tightened. As Ruger noted in its earnings release, background checks through the FBI's NICS database surged 46% in the first quarter.

Yet Americans themselves are less in favor of stricter gun-control measures than they were just one month ago. According to a new USA Today poll, less than half of those surveyed favored new laws. As the horror of the Sandy Hook school shooting recedes, Americans are returning to their traditional stance of believing the current laws on the books ought to be enforced before new laws are enacted.

What the efforts to gin up support for gun bans has done is motivate many Americans to buy a gun now rather than wait till later. Ruger reports that for the first time ever, it produced more than half a million guns in one quarter and shipped more than half a million. This was despite limiting incoming orders from independent distributors as a means of keeping backlog from growing beyond its control -- because backlog already stands at 2.1 million units, more than double where it was a year ago!

Smith & Wesson Holding (NASDAQ: SWHC  ) experienced similar growth, with its quarterly report last month showing a 45% jump in overall gun sales. Handgun sales soared 36%, while modern sporting rifles -- what the anti-gun crowd calls "assault rifles," but which are anything but -- more than doubled. Backlog at S&W also blasted higher, rising 236% from last year and double what it was just three months ago.

While the gunmakers are on target with growth, we're seeing the same thing happen at the gun sellers. Cabela's (NYSE: CAB  ) reported that it's seen such an influx of gun enthusiasts into its stores that its margins were slightly hurt because guns and ammo carry lower margins. Gross profits, however, actually jumped.

Dick's Sporting Goods (NYSE: DKS  ) , on the other hand, realized it was shooting itself in the foot by refusing to sell handguns and modern sporting rifles at its stores. To get around the self-imposed policy and cash in on the demand, Dick's is opening a new retail concept store under the legendary Field & Stream name that will sell handguns.

At 14 times earnings and 21 times estimates, Ruger is not so undervalued even if its stock is down 15% from its 52-week highs. Alternatively, Smith & Wesson goes for just eight times earnings and estimates and trades at just a fraction of its projected growth rate. But with demand at both gunmakers at unprecedented levels -- demand for which shows no sign of abating anytime soon -- an investor might target either of them (or both!) and still hit the bull's-eye of profitability.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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Related Tickers

11/25/2015 4:02 PM
RGR $53.27 Up +0.66 +0.00%
Sturm, Ruger & Com… CAPS Rating: ***
CAB $47.66 Up +0.67 +0.00%
Cabela's, Inc. CAPS Rating: *****
DKS $39.45 Down -0.39 +0.00%
Dick's Sporting Go… CAPS Rating: ****
SWHC $18.55 Down -0.10 +0.00%
Smith & Wesson Hol… CAPS Rating: ***