Shot in the dark, Sturm Ruger Investors Digest Trump Win on Firearm Sales

While the subject dominated the speeches of politicians for all of 2016, gun control was rarely discussed during the presidential campaign. Now that voters have elected Donald Trump for the presidency of the United States, gunmakers are among the groups dealing with what their futures may hold.

One of those gun makers is Sturm Ruger & Co. (NYSE: RGR). Its third quarter results blew it out of the water. Its net sales for the nine months ended Oct. 1, were $502.5 million and its earnings per share were $3.48. That squashed the numbers for the same period during 2015, in which sales were $398.7 million, and its EPS were $2.33.

Naturally, Sturm Ruger’s stock rallied on the earning news, but that came to a screeching halt on the morning following the announcement that Donald Trump is the president-elect. While President Obama was widely known to be in favor of gun control measures that would restrict firearm purchases, that’s not the thought about Trump. Firearm sales spiked while the gun control talk made headlines, and gun makers like Sturm Ruger enjoyed the ride from people buying up the weapons before any restrictions began.

Sensing that buying spree coming to an end, investors are rearranging their positions in the space. Given the fall in firearm stock prices, now may be a good entry point.

For example, Investopedia points out that Sturm Ruger’s EV-to-FCF ratio of 14 makes it cheap.

Then take a  look at Sturm Ruger’s other fundamentals. It enjoys a relatively successful operating model that results in impressive profit margins. Over the past five years, its return on assets indicate that it has a good shot at maintaining impressive operating returns.
Analysts point out that its relatively high pre-tax margin suggests that it is tightly controlling its operating costs.

Sturm Ruger pays a $.41 per share dividend.

The main headwind for Sturm Ruger and its peers is Trump’s plans for gun control. Again, that headwind is mitigated by the unlikelihood that Trump would call for restrictions that would hamper consumers being able to buy firearms. In fact, the first 100-day plan that has bandied about since Trump won does not include any gun control measures.

One of the social issues that is a positive headwind for the firearm industry deals with concealed carry laws. As more states allow for the practice, the firearm industry is making guns that make it easy to carry guns on one’s person.

Sturm Ruger’s efforts in this space are reflected in its new product sales. Specifically, the LC9 was redesigned and contributed to the $58 million or 36% of firearm sales in the third quarter. However, the company says it expects new product sales to decrease in the fourth quarter, as sales of the AR-556 and the LC9s will no longer be included among the new products.

While Sturm Ruger enjoys strong fundamentals that make it an attractive buy, the slowdown in firearm sales should be factored into any stocl buying decision.

Leave a Reply

Your email address will not be published. Required fields are marked *