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Scott Wachsler
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I manage Wax, a baseline equity research company comprised of individual investors not licensed or registered with any government agency. I have been all cap value investor and independent equity researcher for the past 30 years, and believe that patience is the key to successful... More
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Wax Ink
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Wax Ink
  • The Delivery Round 0 comments
    Jan 30, 2010 5:05 PM | about stocks: RGR
    They manufacture things that make loud noises. They manufacture things that if not properly used can hurt people. They have seven class action lawsuits filed against them. What can we say...we really like this company.

    The company is Sturm, Ruger and Company, Inc. (NYSE: RGR) , a domestic firearm manufacturer, and from August 2009 through October 2009, the company has had numerous class action lawsuits filed against it.

    The reason for the lawsuits? Because in October 2007, the company CEO, Michael Fifer, in a letter to shareholders regarding the company's 3rd quarter 2007 performance, was, in our opinion, forthright.

    To read the Letter to Shareholders, please click here.

    Because we think the CEO is a straight shooter, we decided to look down the sites and see if we could line the cross-hairs up on a reasonable investment opportunity.

    Financial information contained in this report is based on the company's most recent Form 10-K filing for fiscal year ending December 31, 2008 as filed with the with the Securities and Exchange Commission on February 24, 2009.

    What They Do
    The company is engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 96% of the company's total sales for fiscal 2008 were from the firearms segment, and approximately 4% were from investment castings. Export sales represent less than 6% of firearms sales and the company's design and manufacturing operations are located in the United States, with most of its product content domestic.

    The company has been in the business since 1949 and was incorporated in its present form under the laws of Delaware in 1969, and offers products in four industry product categories - rifles, shotguns, pistols, and revolvers.

    The company's firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

    Short-Term Investment
    With a recent close of $10.94, and first resistance of $11.83, the stock currently has an upside reward of 8%. Conversely, with first support at $10.62, the stock currently has a downside risk of 3%.

    While the recent trend line seems to indicate the stock price is just entering and upward trend, we simply think that an $11.00 is to great a risk for a 5% return potential.

    However, the markets seems to think that the company is going to announce very good fourth quarter and fiscal 2009 earnings, and in review of the company's recent Form 10-Q filings, we happen to agree with markets.

    Riding the upward momentum being created by all of the market buzz may not be a bad move at this price point.

    Long-Term (5 Year Hold) Investment
    Overall, the company's fiscal 2008 numbers were, in our opinion, fair.

    The company ended the year with a Current Ratio of 2.57, a Quick Ratio of 1.83, and a Cash Ratio of 0.96, all of which are above our metric targets.

    In addition, the company's Debt number was very good, at $0.05 per share, and the company's Cash Conversion Cycle at almost 57 days was not bad.

    One of the things we did not like was the company's Average Receivables Outstanding period at 52 days, while its Payables Outstanding Days was 27, meaning the company is providing almost 100% of its suppliers' financing for free, a practice we think management should stop today.

    We also did not like the company's Return on Invested Capital number at 9%. We need 20% or better to get to investment grade.

    The last thing we did not like at all, was the company's Free Cash Flow at $0.16. To us this is the single most important metric we track, and $0.16 is simply not going to keep us interested long.

    Final Thoughts
    We looked through the company's financials for the first three quarters of fiscal 2009 and were quite pleased.

    Sales had already surpassed fiscal 2008, Marketable Securities had increased, Return on Invested Capital was up dramatically, Free Cash Flow had more than tripled, and the gap between Accounts Payable and Accounts Receivable had dropped from 25 days to 16 days.

    We also noticed that company had started paying dividends again. All of these things should work well for investors willing to own this company over the longer-term.


    For the Wax Ink Sturm Ruger Raw Value worksheet, please click here.

    Disclosure: No Position
    Stocks: RGR
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