It's not every day that an iconic American company that has been around since 1949 is forced to stop taking orders until "the end of May" due to overwhelming demand. Sturm, Ruger & Co. (RGR), the U.S. firearms company with a 974.4M market cap has done exactly that. Due to extremely positive Q1 sales of over 1M units, Sturm, Ruger &Co. has temporarily suspended acceptance of new orders because it cannot keep up with demand. The company, which operates in the consumer goods sector, is currently benefiting from a huge surge in interest of firearms, a surge which has been catalyzed by a variety of factors, from election fears to economic conditions and legislative as well as judicial action. Sturm, Ruger & Co. has been riding high, experiencing a 52.3% gain in its stock price YTD and hovering near its 52-week high of $53.29.
Upon closer inspection, Sturm, Ruger & Co. has solid fundamentals. In fact, it has arguably the best fundamentals in the firearms industry. Last quarter, Sturm, Ruger & Co. blew away analysts and estimates as it reported an 80% EPS increase Year-Over-Year (YOY), a 45% increase in sales YOY, as well as a 17.4% earnings surprise. Moreover, Sturm, Ruger & Co. has experienced an impressive 64% average EPS growth for its last three quarters, its estimate revisions are up, and it is currently forecasting a 45% EPS increase YOY for the current quarter.
This growth has been by no means sporadic. Sturm, Ruger & Co. has been experiencing constant growth, which has recently been spurred on by the various aforementioned catalysts. Sturm, Ruger & Co. has a healthy 3-Year EPS Growth Rate of 39%, with an estimate of 22% annual earnings growth for this year. Moreover, it has experienced 4 consecutive years of annual EPS growth. Sturm, Ruger & Co. also has a 14% 3-Year Sales Growth Rate, which shows a constant and substantial demand for its products.
Going hand-in-hand with the company's strong earnings and sales figures is its profitability. Sturm, Ruger & Co. has an annual ROE of 31.8%, with an annual Pre-Tax Margin of 19.3%. It has an Operating Margin (TTM) of 19.19%, compared to the industry average of 2.31%;ever since Michael Fifer became CEO of Sturm, Ruger & Co. in late 2006, it has been continuously improving margins.
Sturm, Ruger & Co.'s major competitor is Smith & Wesson (SWHC). Although Smith & Wesson is poised to benefit directly from Sturm, Ruger & Co.'s temporary suspension of acceptance of new orders, it has some significant detriments. For one, Smith & Wesson recently had to spin off its perimeter security business because of a significant drop in demand due to reduced government and corporate spending. The impact from this spinoff in the long-term will allow Smith & Wesson to focus on its firearms business. However, in the short term, Smith & Wesson's bottom line may be adversely impacted; for its last fiscal year, Smith & Wesson's security business accounted for 13 percent of its revenues.
Moreover, there are some red flags concerning Smith & Wesson's fundamental performance: it has a -24% 3-Year EPS Growth Rate on a low 3% 3-Year Sales Growth Rate. Profitability has also been paltry compared to that of Sturm, Ruger & Co.; Smith & Wesson currently has an annual ROE of 7.9% and an annual Pre-Tax Margin of 4.1%.
Sturm, Ruger & Co. has no debt and is currently modifying its manufacturing process to ensure it can adequately accommodate significant demand in the future. It is also focused on expanding its business, and is currently searching for potential acquisitions that "will move the needle," according to Michael Fifer.
Overall, Sturm, Ruger & Co. is a very attractive investment that has strong fundamentals and is experiencing huge demand for its products. Although it may be somewhat negatively impacted by its temporary suspension of the acceptance of new orders, Sturm, Ruger & Co. has a strong case going for its future prosperity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.