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Why Sturm, Ruger & Company, Inc. Shareholders Have Nothing to Worry About

By Rich Duprey – Apr 24, 2017 at 1:31PM

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Despite the doomsayers, the gun giant is still on target for growth.

Donald Trump's election undoubtedly had a negative impact on gun stocks. It immediately sent shares of Sturm, Ruger (RGR 0.67%) tumbling 26%, a slightly worse drop than what rival American Outdoor Brands (SWBI 0.83%) experienced.

Yet in the ensuing months, Ruger has gained back much more ground than its rival, remaining just 10.7% below where it traded just before the vote took place, considerably better than the 25% loss the maker of Smith & Wesson firearms is still nursing. The disparity seems to indicate Sturm, Ruger may be in a better position than its industry peer. 

RGR Chart

RGR data by YCharts.

Here are a few more reasons why investors have nothing to worry about.

The gun industry is still hot

As the biggest gunmaker in the U.S. based on the number of firearms produced, Sturm, Ruger would naturally take the bigger hit from an event that purportedly disrupted its sales. The FBI had recorded 27.5 million background checks on would-be gun purchasers last year, more than at any time since it started keeping track of those records in the late 1990s, and more than double the number performed in 2008, the year Barack Obama was elected president. He was deemed the greatest gun salesman ever.

Now with Trump in office, the imperative to buy guns is gone. Or is it? While mass shootings spur more calls for strict gun control, which in turn drives sales, ,  it is the issue of personal safety that is motivating many gun buyers today. The most popular guns on the market were and are those designed for concealed carry. Compact, lightweight, yet still possessing a lot of firepower, the popularity of concealed carry weapons is a response to rising crime rates.

It's true that violent crime is dramatically lower than at any time in recent memory, but it's still been ticking up in recent years, and coupled with violent protests and riots that have broken out, the need to protect yourself, your family, and your property is the new galvanizing force in gun sales.

Man in suit revealing a holstered gun in his waistband

Image source: Getty Images.

That hasn't changed since November, and perception may be getting worse as those opposing Trump's policies stage large-scale demonstrations against them. So, it's arguably not gun control that is pushing sales higher today, but personal safety.

Sales still running high

An upward sales trend is evident by the latest FBI statistics, which show background checks rising. Analysts weren't prepared for that and were shocked to learn March data was appreciably higher than February, which was significantly above January. Background checks may be lower than the all-time highs they reached last year, but year to date they're running some 20% above the levels seen in 2015, itself a record year for gun sales.

Chart showing year over year changes in FBI gun buyer background checks by month Sept to Mar

Data source: FBI. Chart by author.

Sturm, Ruger reported full-year financial results in February that showed earnings surged 34% on a 21% increase in sales, 99% of which came from firearms (it derives less than $6 million annually from the sale of castings to third parties). Last month, American Outdoor said that nine-month firearms sales (it has a different fiscal year than Ruger) also enjoyed substantial growth, with segment revenue rising 30% year over year.

Guns are more commonplace, acceptable

We'll get a better handle on how sales are progressing when both gunmakers report their next quarterly results, but it's instructive that Ruger wasn't particularly concerned about slack demand, noting while political factors drive demand in one way, other factors come into play to offset it. CEO Michael Fifer was actually quite ebullient about the future, noting, "It appears to me to look over multiple years that there is wider acceptance of guns; wider availability; there is more exciting new products from all the competitors, not just Ruger; there are more reasons to have guns now than ever before."

American Outdoors has said demand is simply reverting to the mean, and Fifer agrees, doubting "the new normal will be materially lower than where we were going before." 

There are more people that have been brought into the shooting sports over the past decade, and new types of shooters, too, including women and younger people. Women, in fact, are seen as the source of a new gun sales boom.

The firearms industry remains healthy, and while there are pockets of concern here and there, every indication is that demand remains elevated and will only continue to grow. That can only bode well for the biggest manufacturer in the space and should help Sturm, Ruger investors understand the gunmaker has nothing to worry about.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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