Sturm, Ruger & Company (NYSE:RGR) released its earnings report for the first three months of 2013 this afternoon after the market closed. The company showed earnings per share of $1.20 for the period on revenue totaling $155.9 million. The firm’s shares traded up on today’s market, finishing the day at $50.97 per share.
Analysts were looking for earnings of $1.01 per share form the firearms manufacturer, on quarterly revenues of $132 million. In the first three months of 2012, Sturm, Ruger & Company (NYSE:RGR) managed to earn 79 cents per share on revenues of $111 million. Whisper number circulating in the hours before the release of the report indicated that the firm would beat analyst estimates.
So far in 2013, shares in Sturm, Ruger & Company (NYSE:RGR) have gained more than 11 percent, in line with gains made by the S&P 500. The company has benefited from the boom in the firearms market, which many analysts believe is related to fears that the federal government will pass legislation limiting the rights of gun owners and sellers in the United States.
The trend toward gun control may hurt Sturm, Ruger & Company (NYSE:RGR) in the long term, but it is unlikely that any of the proposals currently on the table will do much to curb the company’s ability to sell weapons. The current proposals are, however, causing a short term boom in demand, though that will likely slacken off in future quarters.
Despite the short term boost in demand there are real problems with the valuation of the company right now. Sturm, Ruger & Company (NYSE:RGR) trade at a P?E ratio of above 14, and at their 2013 peak of over $57 last week, the company’s P/E ratio was closer to 16. Sturm, Ruger & Company shares are trading at a much higher valuation than competitors like Smith & Wesson Holding Corporation (NASDAQ:SWHC).
The high valuation on shares is making some investors nervous, and many are choosing to stay away from the gun market altogether, as it seems to be vulnerable to unstable demand on headline pressures right now. There is no telling when the boom in gun sales will end, but it’s not likely to represent a secular trend, and that means investors could get burned.
Gun sales appear to be an unstable market right now, and small companies, like Sturm, Ruger & Company (NYSE:RGR) may be especially vulnerable.