This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Guns Are Still Better Than Gold

Stocks in this article: RGR CAB SWHC

During my 18 years as a professional money manager, I have learned that it is not wise to buy a stock just because of its performance. Value is also a critical area to analyze.

I spent some years as a stock analyst. One of my main jobs was to come up with a valuation for the companies that I visited. I would establish earnings estimates and project a five-year growth rate for those earnings. From those numbers, I would then establish a valuation for the company.

I would then compare the current price of the stock with the valuation that I came up with. I liked to establish five-year price targets as opposed to short-term ones. Let's take a look at a current valuation for Ruger:







The consensus EPS estimate for next year currently is $2.91 per share. There is no consensus growth rate on the Street so I have to calculate my own growth rate.

The company has been growing its earnings at a rate of 69% per share over the last five years. It has delivered earnings growth of 33%, 81%, 80%, and 88%, respectively, over the last four quarters.

I am using a very conservative five-year growth rate of 12% per year over the next five years. This would get the company to about $4.58 in earnings per share five years from now.

I am applying a reasonable multiple of 17X to those future earnings to calculate a five-year target price of $78. I also believe this target price has lot of upside potential, as my assumptions are very conservative.

Don't forget that you also get a current dividend yield of 2.6% with the stock. It should also be noted that the two other publicly traded gun stocks, Cabelas (CAB) and Smith & Wesson (SWHC), are hitting new highs right now.

When I compare the performance and valuation of Ruger against 2,840 other possible investments, it comes in at #172. It also gets an overall grade of "A-".

There is a lot to like here! Sturm Ruger is definitely worth a look once again. I am long Ruger in the aggressive accounts that I manage. It is also one of the 23 stocks in the Aggressive Model Portfolio that I publish every week.







At the time of publication the author had a position in RGR.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs