Guns Are Still Better Than Gold
I focused on Sturm Ruger (RGR) , a small-cap company headquartered in Southport, CT. The stock was trading at $29.50 at the time. I also owned a large position for my clients who are aggressive growth investors.
The stock stormed higher in the ensuing months, and finally topped out at $58.42 per share on May 2, 2012. I eventually sold the stock on May 11 at $50.21 for a very healthy profit. The stock finally broke down below its trend line, and it was time to move on.
The stock went into a down trend that finally ended in early June at a price of $34.22. The stock has been back in an uptrend ever since. The fact of the matter is that the stock had gotten way ahead of itself and was overdue for a healthy correction.
Now that its correction is over, and the stock is back in an uptrend, it is definitely time to analyze it again.
I like to begin by looking at the performance of the stock:
As you can see, the stock has delivered superior, albeit a bit volatile, returns to investors over the years. Its 10-year track record is superb, as are its five-year, three-year and one-year returns. The stock has been delivering alpha for a long time.
Also, notice the stock was up 10.4% while the market was down 38.5% in 2008. It should be noted the stock has just gone through a correction of 40%, however. Sturm Ruger is not a low-beta stock, but the returns have been well worth the volatility that is inherent in the stock.
When I compare the stock to just over 2,800 that I follow, it earns a relative performance grade of "A." This puts it in the top 7% of all stocks from a short-term, intermediate-term, and long-term basis.
During my 18 years as a professional money manager, I have learned that it is not wise to buy a stock just because of its performance. Value is also a critical area to analyze.
I spent some years as a stock analyst. One of my main jobs was to come up with a valuation for the companies that I visited. I would establish earnings estimates and project a five-year growth rate for those earnings. From those numbers, I would then establish a valuation for the company.