Ruger Is Oversold

| About: Sturm, Ruger (RGR)

Everyone's hearts go out to the victims and families of school shootings, from the much forgotten heart breaking loss of Cambodian and Vietnamese children in Stockton, California to the recent senseless tragedy in Newtown, Connecticut. A balanced approach, putting everything on the table; gun control, mental health issues, and school security is called for in this national debate.

Sturm Ruger (NYSE:RGR) has seen increased sales over the last four years for a variety of reasons, from increased popularity and acceptance of guns, changes in concealed carry laws favoring Ruger's new handgun offerings (LCP, LCR, and LC9), changing demographics (such as women shooters), in addition to a strong presence in its traditional market, revolvers, pistols, and hunting rifles and shotguns. Some of Ruger's newer offerings are back ordered. Ruger continues to add products, with its economical, but well-featured All American rifles for hunting.

Ruger rewarded investors recently with a special dividend payable to shareholders of record on December 7, 2012, in part due to a strong balance sheet and in part due to the potential tax liability facing shareholders because of the fiscal cliff. A conservative company with $100 million plus ($2 per share) in cash that rewards shareholders, that's a place to start in searching for a stable long-term investment. Smith & Wesson (SWHC), on the other hand, has debt.

With this recent tragedy, gun sales are up, Ruger and Smith and Wesson shares are down. That is a typical short-term market reaction that represents a buying opportunity. Ruger is not likely to have a major revenue decline even if there is a return of an assault weapon ban and high capacity magazine ban. In California, if anything, Ruger benefited from the nation's tightest assault weapon ban. Ruger's equivalent .223 caliber rifles, with wood stocks lacking pistol grips, remained on the market, albeit with 10 round magazines. Ruger does have a gas piston AR15 type rifle priced at the high end of the AR15 market, so a decline in sales or loss in sales of this rifle are unlikely to have a major impact on Ruger's bottom line.

Ruger has enjoyed phenomenal year over sales increase without debt, a PE that has dropped to 13 recently, and a more than 3% dividend. A little known fact, Ruger stands unconditionally behind the safety of its products. The company issues recalls and repairs all guns, free of charge, as best exemplified by a safety problem with the popular single six 22 caliber revolver which are fixed completely free of charge. Few companies have the record that Ruger enjoys.

Guns are durable products, which had traditionally hampered revenue growth in this industry. That has changed in recent years, with multiple gun ownership on the rise and new demographics of gun owners. That could change, time will tell. But a balanced political approach putting everything on the table, gun control, mental health issues, and school security does not spell the end of this American company.

Disclosure: I am long RGR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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