Ruger has been treading water for the past six months, recording a small loss of 3.7% while holding steady at $39.90.
Is now the time to buy Ruger, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
We're sitting this one out for now. Here are three reasons why we avoid RGR and a stock we'd rather own.
Why Is Ruger Not Exciting?
Founded in 1949, Ruger (NYSE:RGR) is an American manufacturer of firearms for the commercial sporting market.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Ruger’s 5.5% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Ruger’s full-year EPS dropped 130%, or 23.2% annually, over the last four years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, Ruger’s low margin of safety could leave its stock price susceptible to large downswings.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Ruger’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Ruger isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 16× forward price-to-earnings (or $39.90 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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