For the second time since 2018, America’s oldest gunmaker, Remington Arms Co., is preparing to file for chapter 11 bankruptcy protection. The Wall Street Journal reported last Friday that the company, which was founded in 1816, is also looking to sell its assets to the Navajo Nation.
Despite emerging from its first bankruptcy in May 2018, which resulted in the cancellation of $775 million in debt and the transfer of ownership to creditors like Franklin Templeton Investments and JPMorgan Asset Management, people familiar with the matter said the firearms manufacturer has continued to struggle with high interest expenses, operational issues and litigation costs associated with the Sandy Hook Elementary School shooting that occurred in 2012.
While the deal between privately held Remington and the Navajo Nation is not guaranteed to materialize, the largest Native American reservation in the U.S. previously made a bid for the company in 2018. At the time, the tribe planned to use an investment trust to fund a purchase that would transform the company by dropping weapons like the Bushmaster AR-15 rifle and instead focus on developing hunting firearms for consumers, sales to law enforcement organizations and smart gun technology.
Although firearms manufacturers have been operating in a fraught environment over the past several years as a series of mass shootings led to calls for greater gun control measures, gun and ammunition sales in the U.S. have surged in recent months amid the coronavirus-related lockdowns. As such, gunmakers like Smith & Wesson Brands Inc. (SWBI, Financial), Sturm, Ruger & Co. Inc. (RGR, Financial) and Vista Outdoor Inc. (VSTO, Financial) have seen their stocks rise.
Smith & Wesson Brands
The Springfield, Massachusetts-based weapons manufacturer, which changed its name following the spinoff of American Outdoor Brands Inc. at the beginning of June, has a $1.08 billion market cap; its shares were trading around $19.41 on June 29 with a price-earnings ratio of 68.08, a price-book ratio of 2.86 and a price-sales ratio of 1.62.
GuruFocus says the stock has gained over 100% year to date.
The GuruFocus valuation rank of 2 out of 10 also suggests the company is overpriced since the share price and price-sales ratio are near multiyear highs.
Smith & Wesson’s financial strength was rated 6 out of 10 by GuruFocus. While it has poor interest coverage and a low cash-debt ratio of 0.19, the Altman Z-Score of 3.59 indicates it is in good standing.
The company’s profitability scored a 7 out of 10 rating even though the margins are declining and the returns are underperforming a majority of competitors. It also has a moderate Piotroski F-Score of 4, which implies operations are stable. As a result of declining revenue per share over the past five years, however, Smith & Wesson’s predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake in the company with 5.29% of outstanding shares. Paul Tudor Jones (Trades, Portfolio) also owns the stock.
Sturm, Ruger & Co.
The well-known gunmaker, which is headquartered in Southport, Connecticut, has a market cap of $1.28 billion; its shares were trading around $72.33 on Monday with a price-earnings ratio of 37.43, a price-book ratio of 4.32 and a price-sales ratio of 3.08.
GuruFocus data shows the stock has climbed over 40% so far this year.
The GuruFocus valuation rank of 1 out of 10 indicates the stock is overvalued since its share price and price-sales ratio are near 10-year highs.
GuruFocus rated Ruger’s financial strength 9 out of 10 on the back of comfortable interest coverage and a robust Altman Z-Score of 15.5. The company also has good profitability since its return on invested capital significantly outperforms its weighted average cost of capital.
The company’s profitability also fared well with an 8 out of 10 rating. Although its margins are in decline, they still outperform over half of its industry peers. Ruger also has strong returns and a moderate Piotroski F-Score of 6. As a result of declining revenue per share over the past several years, the three-star predictability rank is on watch. GuruFocus says companies with this rank return an average of 8.2% per year.
With an 8.19% stake, Simons’ firm is the company’s largest guru shareholder. Chuck Royce (Trades, Portfolio) also has a position in the stock.
Vista Outdoor
Based in Anoka, Minnesota, the company, which manufactures scopes, binoculars, ammunition and other gear for the outdoors, has an $817.54 million market cap; its shares were trading around $14.08 on Monday with a price-book ratio of 1.89 and a price-sales ratio of 0.46.
GuruFocus estimates the stock has risen over 75% year to date.
Vista Outdoor’s financial strength was rated 4 out of 10 by GuruFocus on the back of poor interest coverage and a low Altman Z-Score of 0.88, which warns the company could be at risk of going bankrupt since its Sloan ratio implies poor earnings quality. The WACC also outweighs the ROIC, which suggests the company spends more money than it makes.
The company’s profitability did not fare much better, scoring a 5 out of 10 rating as a result of declining margins and negative returns that underperform a majority of competitors. Vista Outdoor is also supported by a moderate Piotroski F-Score of 5, but its revenue per share had been declining over the past five years.
Of the gurus invested in Vista Outdoor, Simons’ firm has the largest position with2.09% of outstanding shares. Other top guru shareholders are Bruce Berkowitz (Trades, Portfolio), Jones, Joel Greenblatt (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Disclosure: No positions.
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