Why Sturm, Ruger Stock Surged 10%

By Rich SmithMarketsFool.com

What happened

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Shares of gunsmith Sturm, Ruger & Company (NYSE: RGR) rocketed as much as 16% higher in early Tuesday trading, before settling down to book a 9.9% gain as of 12:30 p.m. EDT.

So what

With no Democrat in the White House to drive sales, investors have been worrying this year that gun sales might drop as fears of gun regulation wane. Turns out, they were both right about that, and wrong.

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On Monday after close of trading, Sturm, Ruger announced its fiscal first-quarter 2017 earnings, and the news was pretty good, considering the political environment. Sales declined modestly to $167.4 million, while profits held steady at $1.21 per diluted share. These results were a good sight better than analysts'fears that Ruger would report only $1.07 in earnings per share on a more significant sales slide to $159 million.

Put simply, Ruger beat earnings with a stick.

Sturm, Ruger hit its targets -- and then proceeded to show off a little. Image source: Getty Images.

Now what

That doesn't mean that Sturm, Ruger (or rivals American Outdoor Brands or Vista Outdoor) is entirely out of the woods, though. Explaining the sales downturn, Ruger management noted that it's seeing "decreased overall consumer demand" and also "decreased overall retailer demand," both resulting from "the political campaigns for the November 2016 elections."

These trends, first noticed in the first quarter of 2017, could bleed over into subsequent quarters as well, perhaps endangering Ruger's chances of hitting analysts' targeted $3.96 in EPS this year. Ruger investors deserve their victory laps today, but once those are done, it might be a good idea to continue watching gun-sale trends closely. There's still a long way to go till year-end, and this new trend of slowing sales could be only just getting started.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.