Please ensure Javascript is enabled for purposes of website accessibility

Ruger Shoots Low

By Seth Jayson – Updated Nov 16, 2016 at 4:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's another down quarter for America's largest gun maker.

Sturm, Ruger's (NYSE:RGR) latest rifles may offer a high-velocity, .204-caliber cartridge that keeps the bullet from dropping off, but the company can't seem to flatten the trajectory of its sales and earnings curves.

On the heels of years of decline, the firm put up another first quarter of sinking revenues, inking $40.2 million, down 2% compared with $41.1 million in the prior-year period. Revenues for both the gun business and the casting business -- which produces products like golf club heads -- fell off. Earnings took a bigger dive, shedding 18% from the first quarter of 2003 to reach $0.14 per share.

In the face of this long, slow, earthward spiral, it's difficult to guess why Ruger's share price hovers just below its 52-week high of $13.97, or why it has appreciated 60% over the trailing year's low. Why are investors putting a P/E ratio of 31 on a firm with such dubious prospects?

Sure, the balance sheet remains debt-free, but the firm is also painfully free of free cash flow, and over the past several years, the tasty-looking dividend has consumed much more cash than the company could generate through operations. Sturm, Ruger bears all the corporate symptoms of chronic wasting disease.

Sure, sometimes it is fun to own stock in companies that produce a product you enjoy, but gun fans would be wise to stay away. And while they're at it, they should avoid Smith & Wesson Holding (AMEX:SWB) with even greater prejudice. It trades with the pennies, and recently appointed a board chairman who was an acknowledged armed robber. He quit that post, only to remain on the board.

Looking for companies that can afford to pay their dividends? Try Mathew Emmert's Motley Fool Income Investor free for 30 days.

Fool contributor Seth Jayson owns a couple of Ruger firearms, but no shares of any company mentioned above. View his Fool profile here.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sturm, Ruger & Company, Inc. Stock Quote
Sturm, Ruger & Company, Inc.
RGR
$51.16 (0.69%) $0.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.