Sturm, Ruger Misses Targets by a Mile, RGR Stock Remains a Sell

The Obama gun-sales bubble has burst once and for all

Sturm, Ruger & Company (RGR) stock tumbled after the gunmaker’s quarterly earnings missed analysts’ target by a laughably wide margin, proving definitively that the gun-sales boom driven by fears of the Obama administration is at an end.

RGR stockAs great a run as RGR stock had during the Obama presidency — and especially after the shooting in Newtown — it’s over. There’s nothing left to do but sell RGR stock and book profits.

Hey, it’s understandable if it’s hard for investors in gun stocks to let go. Last year set a record for gun sales after a string of ghastly school shootings stoked fears that the federal government would clamp down on gun sales.

Not long ago, business couldn’t have been better. Heck, RGR stock is up nearly 600% since Obama took the oath of office, and that’s after a nasty selloff in 2014. Before the bottom fell out of gun sales earlier this year, RGR stock had risen 1,000% since Obama’s inauguration.

But now two things have come together to depress gun sales — too much supply and too little demand — and they will take a long time to clean up.

Demand is slowing markedly, partly because fears of federal government action have proven to be overblown again and again. RGR stock doesn’t move on news like it once did. Even a proposed ballot measure to tighten background checks for gun buyers in Washington State isn’t feeding into the fear.

Complicating matters is that gun nuts have all the guns they need by now. America was already like an armed camp before the gun craze. Now it’s absolutely bristling with firearms, but the gunmakers continue to churn out new weapons into a decelerating market. Predictably, now they find themselves with a glut of inventory.

RGR Stock Slammed on Earnings

Sturm, Ruger earnings missed analysts’ average estimate by 59 cents per share. That is an epic miss. The company missed the target so badly the bull’s eye may as well as have been buried underground.

Net income fell so steeply it requires a spit-take to fully appreciate. Profits tumbled to $6.8 million, or 34 cents per share, from $28.7 million, or $1.44 per share, last year.

Of course it all started with the top line, where revenue plummeted to $97.8 million from $167.2 million in last year’s third quarter. That likewise missed Wall Street estimates by a wide margin. Analysts were looking for sales of $149.1 million.

RGR stock was down 40% for the year-to-date before the terrible earnings news hit the tape. After the earnings miss, an air pocket is forming below. At some point RGR stock will be a buy again once the supply-demand imbalance of gun sales get straightened out. It’s getting cheaper by the minute. But until that time comes, RGR stock is a sell.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned stocks.

Article printed from InvestorPlace Media,

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