Sturm, Ruger & Company (RGR), Smith & Wesson Holding Corporation (SWHC): Is there Money to be Made in Weapons?

Whether you like it or not, gun sales are at an all-time high in the United States and they are continuing to grow. Ammo is flying off of store shelves too; the companies that are making it are having a hard time keeping up. As an investor, think about buying into these trends. They show no sign of stopping and the government is going to ban guns outright — but even if they do, this article may still have a stock for you.

Investing in guns

If you want to invest in guns, there are a variety of ways to go about it. The first is to buy gun manufacturers. There are two great pure play stocks for buying guns, and they will be the focus of this article. The two stocks we have are Sturm, Ruger & Company(NYSE:RGR) and Smith & Wesson Holding Corporation (NASDAQ:SWHC). Both of these companies have been making guns for decades and they are the best in the world at it.

Whether it is a shotgun, a pistol, a revolver, or a semi-automatic weapon, these companies have it and they’re selling plenty of them every single day.

Let’s start by looking at the larger of the two companies, Ruger. Ruger is worth just over $1 billion. They have a higher range P/E of 17.97 and they pay a solid dividend that yields 2.65%. With the exceptional growth that these companies have been experiencing recently, they have some incredible PEG ratios. The PEG ratio at Ruger is a very low 0.24. The company also has some $105 million in cash and no debt. Their profit margin is right around 14% on net income of $61 million and free cash flow is around the $40 million mark.

Remember that dividend yield a few lines up? That comes from a 34% payout ratio! Even the payout ratio at Ruger isn’t high, what could be wrong with this stock? Well, there are those potential bans, but even if they come I still believe that Ruger will continue to sell guns of some type and they’ll continue to be profitable.

Smith & Wesson Holding Corporation (NASDAQ:SWHC) are much of the same, they make the same style of guns and they sell them to the same customers in the same stores. The company is worth some $650 million and their P/E ratio is 11. When it comes to cash, Smith & Wesson Holding Corporation (NASDAQ:SWHC) has a hefty amount, as compared to market cap, at $58 million. That cash hoard is more than enough to handle their $43 million in debt, should they choose to pay it off, or go through a rough patch.

While Smith & Wesson Holding Corporation (NASDAQ:SWHC) does make more than Ruger when it comes to revenues, $57 million more at $500 million, it has an 11% net margin compared to Ruger’s 14%.