Should You Capitalize on Sturm, Ruger and Company's Selloff?RGR) reporting triple-digit growth in the reference period. Gun sales have been strong over the last few quarters, a trend which has directly benefited gun companies. It also looks like this uptrend will continue as Sturm, Ruger and Company reported a strong quarter yesterday. Despite the results, the stock is trading in the red in after-hours trading as of writing this article. If the stock opens in the red, I think it would provide a great buying opportunity for investors to buy Sturm, Ruger and Company on the pullback as the stock does not deserve to be trading at such a cheap valuation.
Strong quarterly results
Sturm, Ruger and Company reported Q2 EPS of $1.22, beating the analysts’ estimates by $0.07.
The stock is cheap
Sturm, Ruger and Company is currently trading at under 19x trailing earnings despite reporting double-digit revenue growth. Analysts are expecting Sturm, Ruger and Company to continue reporting strong sales growth going forward, which is why I think the stock’s valuation is very cheap.
The stock had run up leading up to the earnings, which is probably why it is down after as investors have been taking profits off the table. However, I think the post-earnings selloff is irrational and is a great buying opportunity for long-term investors.
With Sturm, Ruger and Company expected to grow 13% this year, the stock’s valuation seems too cheap at 18. Moreover, the company also has a very generous dividend yield of 2.07%, which makes the bull case even more attractive.
Sturm, Ruger and Company reported a stellar quarter and there is no reason for the stock to be trading lower. However, given that the stock is down over 4% post-earnings, I think investors should capitalize on this irrational selloff by increasing their position or using it as an entry point for the long-term. Moreover, the stock’s dividend yield of 2.07% makes it even more attractive for conservative investors.
Disclosure: No Position
Published on Aug 4, 2016By Ayush Singh