The stock of Sturm Ruger (NYSE:RGR, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $66.67 per share and the market cap of $1.2 billion, Sturm Ruger stock is believed to be fairly valued. GF Value for Sturm Ruger is shown in the chart below.
Because Sturm Ruger is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 3.2% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Sturm Ruger has a cash-to-debt ratio of 81.88, which ranks better than 89% of the companies in Aerospace & Defense industry. Based on this, GuruFocus ranks Sturm Ruger's financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Sturm Ruger over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Sturm Ruger has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $568.9 million and earnings of $5.09 a share. Its operating margin is 20.94%, which ranks better than 88% of the companies in Aerospace & Defense industry. Overall, the profitability of Sturm Ruger is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Sturm Ruger over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Sturm Ruger's 3-year average revenue growth rate is in the middle range of the companies in Aerospace & Defense industry. Sturm Ruger's 3-year average EBITDA growth rate is 10.2%, which ranks better than 66% of the companies in Aerospace & Defense industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Sturm Ruger's return on invested capital is 60.14, and its cost of capital is 4.47. The historical ROIC vs WACC comparison of Sturm Ruger is shown below:
In short, The stock of Sturm Ruger (NYSE:RGR, 30-year Financials) is believed to be fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 66% of the companies in Aerospace & Defense industry. To learn more about Sturm Ruger stock, you can check out its 30-year Financials here.
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