Gun maker Sturm, Ruger & Co. (RGR) now has the distinction of meeting the criteria of not one but two of my deeper value screens.
Back in July, Sturm Ruger made an appearance on my modified Benjamin Graham "Stocks for the Defensive Investor" screen, which is not an easy task given the rather stringent criteria:
- Adequate size. A company must have at least $500 million in sales on a trailing 12-month basis. (Graham used a $100 million minimum and at least $50 million in total assets.)
- Strong financial condition. A company must have a current ratio (current assets divided by current liabilities) of at least 2.0. It also must have less long-term debt than working capital.
- Earnings stability. A business must have had positive earnings for the past seven years. (Graham used a 10-year minimum.)
- Dividend record. The company must have paid a dividend for the past seven years. (Graham required 20 years.)
- Earnings growth. Earnings must have expanded by at least 3% compounded annually over the past seven years. (Graham mandated a one-third gain in earnings per share over the latest 10 years.)
- Moderate price-to-earnings (P/E) ratio. A stock must have had a 15 or lower average P/E over the past three years.
- Moderate ratio of price to assets. The price-to-earnings ratio times the price-to-book value ratio must be less than 22.5.
- No utilities or retailers
Since appearing on that screen, Sturm Ruger shares are down 17%. That's likely part of the reason RGR is also a constituent of a screen I utilize to identify stocks trading at relatively low multiples of net current asset value (NCAV), which is calculated by subtracting current liabilities from current assets, the product of which is divided into market cap. Since NCAV places no value on non-current assets, it can provide a built-in margin of safety of sorts, especially when there is a considerable amount of non-current (long-term) assets.
Sturm Ruger currently trades at 3.28x NCAV. While the company garners little analyst coverage (just two 2 analysts cover it), the stock currently trades at about 11.5x 2023 "consensus" estimates. Sturm Ruger ended its latest quarter with significant liquidity, namely $209 million, or $11.81 a share, in cash and short-term investments. The company has no debt.
Sturm Ruger has paid out $2.80 in dividends over the past year, good for a 5.34% trailing dividend yield. However, because the dividend fluctuates (it is based on a percentage of income), you can't hang your hat on that yield. Most recently, it paid a 47-cent quarterly dividend, which equates to a 3.6% implied dividend yield (assumes dividend remains at the same rate).
It is fairly rare to see a name appear on more than one of my deeper value screens simultaneously; this one is not without its share of controversy given the industry in which it operates.
