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Sturm, Ruger & Company (RGR): As Good as They Come

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Sturm, Ruger & Company (RGR)Shareholders in gun manufacturer Sturm, Ruger & Company (NYSE:RGR) have benefited greatly from the recent surge in gun demand driven by gun control and crime rate fears. Its stock price increased 45% over the past year beating the S&P 500 (see chart below). Looking at Ruger from the standpoint of strengths, weaknesses, opportunities, and threats should help you understand the direction of this company.

RGR Total Return Price data by YCharts

Strengths

Focused management – The keen focus of Ruger’s management drives this company. Ruger’s CEO Michael Fifer owns approximately 1.3% of the company’s stock, which incentivizes some of the focus.

Fifer’s focus on accurate production planning shows with his focus on the “sell-through” rate or the rate of sales from the distributor to the retailer. Backlog showed an astronomical rise in the gun industry and he feels that the sell-through rate provides a more accurate picture of industry fundamentals. This line of reasoning stems from industry-wide over-ordering from distributors due to fear of lost sales opportunity because of a low supply of finished goods. Ruger’s sell-through rate increased 63% in 2012.

In their latest earnings calls weapons makers discussed the vast expansion of backlog. Ruger’s backlog more than doubled to 1.5 million units in 2012. Rival gun manufacturer Smith & Wesson Holding Corporation (NASDAQ:SWHC) saw its backlog triple so far. Winchester, the ammunitions arm of chemical company Olin Corporation (NYSE:OLN), saw its backlog increase by a factor of ten in 2012.

Ruger’s management demonstrates remarkable ability to maximize production for every capital expenditure dollar. According to Ruger’s last earnings call, a 7% increase in capital equipment base led to a 52% increase in unit production.

Strong brand – Ruger represents a well-recognized brand name with a rich history. This also serves as a barrier to entry. Someone new can manufacture a gun, but it won’t possess the Ruger name.

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