Guns: An American tradition since... well, pretty much since forever. Photo: Wikimedia Commons.
Do you love guns? Would you love to own a gun stock?
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I've been investing in the stock market for about two decades now. Here at The Motley Fool, I've been writing about investing, trying to help others learn how to do it, for more than a decade. And for as long as I can remember in either capacity -- investor or investing writer -- there have been exactly two stocks to watch for investors interested in guns:Smith & Wesson and Sturm, Ruger . And that was it. Finis.
Today, we've got three stocks to watch. But before I tell you about our mysterious third firearms candidate, let's cover the usual suspects, beginning with...
Smith & WessonThe market for firearms is highly fragmented, with many names -- Glock, Colt, Beretta -- privately owned, located abroad, or both. This can making investing in guns tricky. One of the easiest ways for an investor to gain exposure to this market, though, is through buying shares of industry leader Smith & Wesson.
Boasting a 16% share of the $2.4 billion market for "domestic non-military... handguns" and a 9% share of the $2.1 billion market for domestic non-military "long guns, excluding shotguns," Smith & Wesson appears to be the gun maker with the biggest market share across the board.
As for its stock, a share of Smith & Wesson will set you back $15 and change today -- about 16.2 times earnings. The stock pays no dividend, but is growing earnings at 14% annually, and appears to be somewhere between fairly priced and only slightly overpriced on that metric. Bear in mind, though, that Smith & Wesson carries a heaping helping of debt on its books, making the shares more expensive than they look.
Sturm, RugerUnlike its publicly traded arch-rival, Sturm, Ruger does not publicly claim any particular market share (at least, it discloses none in its 10-K filings with the SEC). That said, if we take Smith & Wesson's estimates of market sizes as a given, then the $311 million in revenues that Sturm collected from sales of pistols and revolvers (collectively, "handguns") last year, and the $204 million it took in from rifle sales, imply market shares of 13% and 10%, respectively.
Granted, this represents a smaller market share than Smith & Wesson boasts. But Ruger stock is debt-free, and pays a 2.4% dividend. If getting a steady income from your investments appeals to you, this alone could make Sturm, Ruger a stock to watch. On the flip side, Sturm shares carry a hefty price tag. Approaching $56 as of this writing, each share costs more than 36 times trailing earnings.
Door No. 3: Vista OutdoorAnd now for the stock you've been waiting for. Opening Door No. 3, we find ourselves outdoors -- or more precisely, at Vista Outdoor .
The culmination of a long series of transactions that began with Alliant TechSystems' acquisition of long guns manufacturer Savage Arms and optics specialist Bushnell Group in 2013, then continued when Alliant merged with Orbital Sciences in 2014 and almost immediately spun off its firearms business early this year, Vista Outdoor has become our third stock to watch when investing in guns.
Vista boasts that it controls "the No. 1 sales position in the U.S. markets for ammunition, riflescopes... gun cleaning solutions and accessories" (and also golf rangefinders). Vista does not, however, affix any particular percentages to this "No. 1" position -- and, significantly, makes no claims to being in the running for No. 1 in the manufacture of actual guns.
Valuation-wise, the stock sells for $45 and change, carries a Ruger-like P/E ratio of 36.3, pays no dividend, and is pegged for merely 3% long-term earnings growthby the analysts who follow it.
Huh. Come to think of it, after seeing those numbers, maybe there really are still only two guns stocks to watch after all.
The article 3 Stocks to Watch in Guns originally appeared on Fool.com.
Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 342 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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