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Posted: 8/4/2005 11:41:59 AM EDT
Stock Of The Week
Ruger: Locked And Loaded

John Dobosz

Neil George, editor of Personal Finance, recommends buying shares of Sturm Ruger & Co., the Southport, Conn.-based firearms maker. Founded in 1949 by Alexander M. Sturm and William B. Ruger, the company makes and sells 34 models of firearms in four primary categories: rifles, shotguns, pistols and revolvers. It also sells accessories and replacement parts.

The reason for George's bullishness on Sturm Ruger is the Senate's passage last Friday of the Protection of Lawful Commerce in Arms Act (S. 397) by a 65-to-31 vote. The bill's language prohibits "civil liability actions from being brought or continued against manufacturers, distributors, dealers, or importers of firearms or ammunition for damages, injunctive or other relief resulting from the misuse of their products by others."

In essence, the bill shields gunmakers and sellers from lawsuits brought by victims of gun crimes and would dismiss any suits currently in federal or state courts. The House of Representatives passed a similar bill last year, but has yet to take up the matter in the 109th Congress. President George W. Bush is expected to sign the final bill.

George says this legislation removes a huge overhang from Ruger's shares--not just by eliminating potential liability from individual lawsuits, but because it frees management to focus on the business and not its legal affairs.

In Sturm Ruger's most-recent quarterly report, management acknowledges being a defendant in "numerous lawsuits" and that it has "expended significant amounts of financial resources and management time in connection with product liability litigation." The company, however, has prevailed in all suits brought by numerous municipalities and a "public nuisance" suit brought by New York State Attorney General Eliot Spitzer. A suit brought by Washington, D.C. was dismissed, but individual plaintiffs were permitted to proceed to discovery. This bill, if passed, will clear the docket.

Fundamentally, Ruger has several appealing characteristics, says George. The company has no long-term debt, $1.29 in cash per share, and it pays a quarterly dividend of $0.10 per share, for a yield of 3.9%. Competitor Smith & Wesson pays no dividend and has a debt-equity ratio of 0.85.

Shares of Ruger are up about 15% in the past 12 months, but most of that gain came late last week, jumping 22% from Wednesday through Friday as it became clear that the Republican majority would have enough votes to ensure passage of the firearm liability bill.Ruger hit a 52-week intra-day high of $11.75 on Friday, but has cooled off this week, closing Tuesday at $10.22.

Based on Tuesday's close, Sturm Ruger trades for 29 times the $0.35 per share that the single analyst who follows the stock believes it will earn in 2005. Over the past 12 months, Ruger earned $0.15 per share. Net income for the past four quarters totaled $4.11 million on sales of $149.7 million. The company has a market capitalization of $275 million.

Technically, Ruger trades 16% above its 50-day moving average. Its 11.3% move up on Friday was on nearly 25 times its average daily volume of 136,452 shares over the past three months. Institutional ownership of 32% of shares outstanding is still modest; insiders own 19%.

Despite the big move in Ruger last week, George says "this is only the beginning of a much bigger move." If the Senate and the House agree on the terms of the bill and President Bush signs it into law, it's not unreasonable to assume that Ruger will benefit from improved profit margins [operating margin over the past four quarters was 4.2%] and attract investors who had been hesitant to invest in a company with uncertain legal liabilities.

Link Posted: 8/4/2005 11:43:44 AM EDT
I got in at $9.05 last Thursday.

Link Posted: 8/4/2005 1:32:53 PM EDT
Fuck Ruger.
Link Posted: 8/4/2005 1:34:05 PM EDT
Bought Sturm Ruger and Olin Industries in June 2000!

Link Posted: 8/4/2005 1:36:33 PM EDT
I bought SWB (smith and wesson) instead at around 2 bucks.. It's in the 5's now.
Link Posted: 8/4/2005 1:40:09 PM EDT

Originally Posted By michaelj1978:
I bought SWB (smith and wesson) instead at around 2 bucks.. It's in the 5's now.

Ruger isn't a bad investment but they operate at the mercy of the courts right now.

Ruger has NO debt, and pays a large dividend.
Link Posted: 8/4/2005 1:59:42 PM EDT

Originally Posted By Kodiak-AK:
Fuck Ruger.

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