Author Archives: Scalper1

Sometimes a niche product within an industry group can call for separate attention. That is probably the case with the three small arms weapons makers in the Security/Safety industry group. The other companies don’t deal in firearms. The security group is down about 11% so far this year vs. a 9% loss in the S&P 500 and a 13% decline in the Nasdaq. However, Sturm Ruger ( RGR ) is up 6% and Smith & Wesson ( SWHC ) is almost flat. Electrical weapons maker Taser ( TASR ) is down 9% year to date. Let’s look at the three stocks. Sturm Ruger has a Composite Rating of 91, putting it in the top 9 percentile of the stocks in IBD’s database. The Street expects full-year 2015 earnings growth to come in at 58% when the company reports later this month. Revenue is expected to slip 1.6%. For 2016, analysts expect earnings to grow 19% on a revenue gain of about 9%. Quarterly after-tax margin dropped to 9.9% in the third quarter. The median after-tax margin since mid-2011 is about 14%. Ruger’s chart shows that its last good breakout was in September 2013, which led to a gain of about 40%. More recent breakouts didn’t yield much. The best was a 12% gain out of a breakout from a flat base in July. The stock has retaken its 50-day and 200-day lines and is about 6% off its high. Smith & Wesson has a Composite Rating of 98. In fiscal 2016 ending in April, the Street expects the company to grow earnings 40% on a 19% sales gain, but the following year only 10% EPS growth on 6% revenue growth. Like Ruger, after-tax margin was 9.9% in its most recent quarter. Smith & Wesson’s margins vary quite a bit — from as high as 26% to as little as 2.5%. Smith & Wesson’s chart shows that the stock has spent most of its time since 2002 trading below 15 a share. This raises concerns that the strength in firearms sales is baked into the price, leaving the stock vulnerable to a pullback. Management has expressed an interest in making an acquisition in the outdoor sporting goods area. While that might sound like a good marriage, Smith & Wesson has a spotty history in acquisitions. The company admitted in its 2014 10-k report that, “We have limited acquisition experience.” The acquisition of Thompson Center Arms in January 2007 and Universal Safety Response in July 2009 led to substantial write-downs. Taser International is in sad shape chartwise. The stock is 56% off a high dating to June. The Street expects a 16% drop in full-year 2015 EPS when the company reports later this month. Revenue is expected to grow 17%. After-tax margin dropped to 3% in Q3. Taser’s chart shows plenty of good gains in its history, but the current consolidation is deep and ugly.