Stock Analysis

Has Sturm Ruger (NYSE:RGR) Got What It Takes To Become A Multi-Bagger?

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NYSE:RGR
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while Sturm Ruger (NYSE:RGR) has a high ROCE right now, lets see what we can decipher from how returns are changing.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sturm Ruger is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.36 = US$87m ÷ (US$311m - US$67m) (Based on the trailing twelve months to September 2020).

So, Sturm Ruger has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 22% earned by companies in a similar industry.

Check out our latest analysis for Sturm Ruger

roce
NYSE:RGR Return on Capital Employed February 1st 2021

Above you can see how the current ROCE for Sturm Ruger compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Sturm Ruger Tell Us?

There hasn't been much to report for Sturm Ruger's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward.

The Bottom Line

In summary, Sturm Ruger isn't compounding its earnings but is generating decent returns on the same amount of capital employed. And with the stock having returned a mere 21% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One final note, you should learn about the 3 warning signs we've spotted with Sturm Ruger (including 1 which is a bit concerning) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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What are the risks and opportunities for Sturm Ruger?

Sturm, Ruger & Company, Inc., together with its subsidiaries, designs, manufactures, and sells firearms under the Ruger name and trademark in the United States.

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Rewards

  • Price-To-Earnings ratio (9.2x) is below the US market (15.1x)

Risks

No risks detected for RGR from our risks checks.

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