Sturm, Ruger & Company (RGR)

Sturm,Ruger (RGR) is engaged in the design, manufacture and sale of firearms and precision investment castings primarily in the United States. The company offers products through four industry product categories: rifles, shotguns, pistols, and revolvers. The investment castings products manufactured by the company consist of titanium, chrome-molybdenum, stainless steel, nickel, and cobalt alloys.

Competition in the firearms industry is intense and comes from both foreign and domestic manufacturers. The handgun market in the United States has maintained a constant growth in the past decade. The industry is susceptible to the legislative actions like the Brady Bill Act of 1994 that prevented the handgun violence. Under such a challenging environment, RGR has not been able to deliver an impressive top-line performance which has reduced by about 3% annually in the last four years. Moreover, major competitor namely Smith and Wesson seems to grab the market share of RGR as the revenue performance of the company has been robust over the years. Looking ahead, company does not have any strategic initiatives that could fuel the growth prospects.

Return on equity of the company has been declining due to the depressing bottom-line performance. However, recently, management authorized a buy-back program up to $ 20 million worth of shares which could improve their return on equity. Nevertheless, the scrip has responded to the news, which could be seen by the gain in the stock price. RGR currently trades near its 52 week high and the price to earnings multiple is also much higher than the industry. In the light of these facts, the company does not look like a lucrative investment at the current price levels.