Investors can expect great things from Sturm, Ruger (RGR 0.55%) in 2021. The gunmaker's operations are already shooting out the lights, and next year its stock should follow suit.
Because Ruger does just one thing, and does it very well, it should be easy for investors to guess where it will go and how it will do it. Here are four things investors should expect for the gunslinger next year.
Gun sales are soaring. The National Shooting Sports Foundation says the FBI conducted almost 1.95 million background checks through its National Instant Criminal Background Check System (NICS) in November, some 45% more than last year.
The industry site also notes that the year-to-date total of 19.1 million background checks already far surpasses the previous record of 15.7 million set in 2016, and more importantly, some 7.7 million people bought a gun for the very first time this year.
That bodes well for the future of the industry, though gunmakers like Ruger and Smith & Wesson Brands (SWBI 0.82%) say it is driven by consumer concerns for personal safety and home defense as civil unrest continues around the country and calls to defund the police continue to make the rounds.
Ruger estimates third quarter sales from its distributors to retailers surged 55% in the quarter to over 457,000 units. The gunsmith does not sell to the public, only to federally licensed firearms distributors and retailers, and the estimates are a proxy for public demand.
Because there is also typically a slight lag in what the gunmaker reports and the demand record through the FBI's NICS, Sturm, Ruger will see sales at elevated levels for quite some time.
Ruger reported third quarter earnings of $1.39 per share, a five-fold increase from the $0.27 per share profit it notched last year.
The average selling price of the firearms it shipped last quarter rose 18% to $337, undoubtedly as a result of new products over the first nine months of 2020 representing 24% of all the firearms sold so far this year. New models, such as the Wrangler, the Ruger-57, the LCP II in .22 LR, and the AR-556 pistol have proved extremely popular.
It also just completed the acquisition of the Marlin brand of firearms from bankrupt Remington, and gun owners and enthusiasts are excited to see what Ruger does with this historic firearms nameplate. As CEO Chris Killoy said at the time, "The value of Marlin and its 150-year legacy was too great of an opportunity for us to pass up. The brand aligns perfectly with ours and the Marlin product portfolio will help us widen our already diverse product offerings."
Bigger dividend payouts
Ruger declared a dividend of $0.56 per share for the third quarter, four times greater than the $0.14 per share it declared last year. But all things aren't equal when it comes to dividends and Ruger.
Because the gun manufacturer pegs its payout to around 40% of earnings, the dividend will fluctuate quarter to quarter. So as Ruger's profits grow over the coming year, its dividend will follow suit.
Higher stock price
Although Sturm, Ruger's stock is up 70% from its low point earlier this year, shares still trade 28% below their August highs.
The gunmaker trades at 16 times trailing earnings and 14 times next year's estimates and goes for just 10 times the free cash flow it produces, a bargain basement level, particularly for what should be a growth stock at this point. There's good reason to think the market will seek equilibrium with this one.
Ruger measures its production levels based on the inventory levels at its distributors and they remain relatively depleted, even compared to last quarter. As there are forces on the national political stage that should keep demand high, sales and profits are going to rise and Sturm, Ruger's stock price should follow.
On target for growth
As the company and Smith & Wesson routinely battle one another for the title of largest gunmaker in the country, their firearms are the ones most often in demand. That should not change in 2021, and investors should look for Sturm, Ruger to be a top gun again.