Author Topic: Firearms - RGR and AOBC  (Read 9420 times)

rukawa

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Re: Firearms - RGR and AOBC
« Reply #10 on: February 14, 2017, 05:15:23 PM »
Rukawa. For all the reasons people have listed. Competition, possible sales peak.  I would only pay 18x if i was confident earnings could slowly grow.  I think technology could disrupt the industry at some point.

If i had to buy one id buy rgr just because they seem to have a brand.

After looking at the history I'm inclined to agree with your original assessment but I am not sure about competition. I feel like a gun is something most people would trust to a brand name because of the safety issues. For the technology are you talking about 3-d printed guns or making guns with milling machines?

Anybody have insight on Smith&Wesson. I always thought of that as a strong brand but looking at the historical financial results it appears to be really poorly managed. Plus the name change indicates that the brand is dead.

Looking on the internet it appears that Smith & Wesson got killed because they went along with the Clinton administration on gun control and the NRA at one point initiated a boycott. I'm guessing this destroyed their brand:
http://www.businessinsider.com/smith-and-wesson-almost-went-out-of-business-trying-to-do-the-right-thing-2013-1

This business is hugely driven by politics.


no_free_lunch

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Re: Firearms - RGR and AOBC
« Reply #11 on: February 14, 2017, 05:36:38 PM »
For the technology are you talking about 3-d printed guns or making guns with milling machines?

I think robotics could significantly lower labour costs.  Which would be good in the short-term but long-term could lead to lower pricing.   I don't know, to me it just feels like a tech company.  Hard to predict what will happen.  It could do good but I am not confident in that outcome.

rukawa

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Re: Firearms - RGR and AOBC
« Reply #12 on: February 15, 2017, 10:32:11 AM »
Quote
I think robotics could significantly lower labour costs.  Which would be good in the short-term but long-term could lead to lower pricing.   I don't know, to me it just feels like a tech company.  Hard to predict what will happen.  It could do good but I am not confident in that outcome.

But that shouldn't really effect profit margins. The only way profit margin do get effected is if guns are seen as commodity goods like usb cables or if there are new entrants into the industry. Lower labour costs would probably actually help gun makers since it would increase the number of gun users.

My fear is the market for used guns. I feel like the number of guns that got bought during the Obama administration was way too many because gun owners were afraid. Now with Trump I can see these guys selling their guns regretting the purchases of guns they never use.  They will sell them onto the used market which should really hurt the market for new guns. I would want to be these guys:
http://www.armslist.com/

rkbabang

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Re: Firearms - RGR and AOBC
« Reply #13 on: February 15, 2017, 10:48:58 AM »
Quote
I think robotics could significantly lower labour costs.  Which would be good in the short-term but long-term could lead to lower pricing.   I don't know, to me it just feels like a tech company.  Hard to predict what will happen.  It could do good but I am not confident in that outcome.

But that shouldn't really effect profit margins. The only way profit margin do get effected is if guns are seen as commodity goods like usb cables or if there are new entrants into the industry. Lower labour costs would probably actually help gun makers since it would increase the number of gun users.

My fear is the market for used guns. I feel like the number of guns that got bought during the Obama administration was way too many because gun owners were afraid. Now with Trump I can see these guys selling their guns regretting the purchases of guns they never use.  They will sell them onto the used market which should really hurt the market for new guns. I would want to be these guys:
http://www.armslist.com/

I never understood the concept of actually selling a gun.   Many gun owners don't, so I'm not so sure that will be significant.  People tend to collect guns not sell them and if they do sell them it is only because there is another one they want but can't afford.  So many used gun sales will translate into new gun sales.

Also guns tend to hold their value fairly well.  I know whenever I've looked into buying a used gun I find myself thinking for only $X more I could just go and buy it new, so I do.  This obviously doesn't apply to rare/antique/collectable items, but I'm not into any of that and that isn't a significant factor in the market we are talking about.

Also, even if you are correct and I wrong, this will effect some gun types more than others.  People had the perception that certain rifles that the anti-gun people like to call "assault weapons" because of how they look were in danger of being banned and many stocked up on those, but I don't think the market for handguns, shotguns, or rifles that aren't black and scary looking to the political left will be affected at all by the Obama spike in sales.  Yes, Obama was the world's best firearms salesman and now he's gone, but long term there will be another Obama-like president and gun sales will spike like crazy again.

no_free_lunch

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Re: Firearms - RGR and AOBC
« Reply #14 on: February 15, 2017, 10:52:10 AM »
I think it could affect profit margins if it lowers prices.  What if margins stay the same as a % of revenue.   If your volume doesn't increase then your operating margins go down.  It could also lead to more competition if it is faster / easier to ramp up production.  It is a long-term risk though, just something I think about if I bought into this industry and got stuck in a slump for a decade.

It is possible I am completely wrong on the tech thing.  However, like you say there is still politics, used firearms, which indicate secular headwinds.  I am staying out.

Pelagic

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Re: Firearms - RGR and AOBC
« Reply #15 on: February 15, 2017, 11:33:55 AM »

My fear is the market for used guns. I feel like the number of guns that got bought during the Obama administration was way too many because gun owners were afraid. Now with Trump I can see these guys selling their guns regretting the purchases of guns they never use.  They will sell them onto the used market which should really hurt the market for new guns. I would want to be these guys:
http://www.armslist.com/

Yes there is a healthy used market but I think its supportive of new gun sales rather than detracting from them. When people go to the range they bring an assortment of guns, some of their guns get shot, some don't but they're still there to shoot. A lot of gun owners like having a collection of guns to shoot and having options available to them. This allows others at the range to see and potentially fire a wide variety of firearms and say well, I liked shooting that one let me buy one too. There may have been a rush to buy because of legislation fears but I don't foresee gun owners flooding the used market with guns anytime soon. I think what's more likely is guns were purchased and locked in safes in a rush to purchase and now owners have saved up enough to equip them as they want them.

I think there's also a misconception that a used firearm is a complete package. Rarely does someone purchase a rifle, whether brand new or used, and use as is. Gun owners want to accessorize their guns with scopes, stocks, grips, tacticool gear, you name it. A lot of these parts are purchased new, I don't know the breakdown of new vs. used accessory purchases but I suspect a lot of gun owners are more willing to buy new accessories and a used gun than the other way around. A good scope for instance can be close to or more than the purchase price of the gun. 

As for the peer to peer sales sites, frankly I wasn't impressed. It's like the stone age of internet payments on them since PayPal doesn't allow for gun related transactions. You have to trust the person you're dealing with and either do a direct bank transfer to them or send a money order by mail. The purchaser also to go through a local FFL which receives the weapon and somewhat complicates the process and will likely charge a fee as well. What I'm getting at is for most transactions conducted online for firearms the marketplace site, whether it's Armslist or one of the others, is not party to the transaction and thus can only charge a listing fee. I think they do charge a % take on sales through a dealer with an FFL but there's nothing to prevent a buyer contacting that dealer directly.

rukawa

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Re: Firearms - RGR and AOBC
« Reply #16 on: February 15, 2017, 01:15:08 PM »
Also, even if you are correct and I wrong, this will effect some gun types more than others.  People had the perception that certain rifles that the anti-gun people like to call "assault weapons" because of how they look were in danger of being banned and many stocked up on those, but I don't think the market for handguns, shotguns, or rifles that aren't black and scary looking to the political left will be affected at all by the Obama spike in sales.  Yes, Obama was the world's best firearms salesman and now he's gone, but long term there will be another Obama-like president and gun sales will spike like crazy again.

The main reason I made the argument about Obama is the incredible difference between the financial results of RGR in 2000-2007 period vs 2008-2016. Sales declined 20% from 2000 to 2007. Net earnings actually declined in half. RGR actually suspended their dividend in 2006. In 2005/6 RGR earnings were close to zero.

Then from 2008-2016 sales nearly quadrupled and net earnings grew by a factor of 10. Profit margins improved from 5% to over 10%.

You are really dealing with two totally different companies depending on the political party in power. The political factor is not small at all...its massive. That is assuming I can ascribe all of RGR performance to political factors..its possible there was a turnaround during that time period.

BTW, I am curious about your perspective on Smith&Wesson.
« Last Edit: February 15, 2017, 01:27:19 PM by rukawa »

StubbleJumper

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Re: Firearms - RGR and AOBC
« Reply #17 on: February 15, 2017, 06:50:04 PM »
Still not sure what to think about the economics of firearms companies, but thanks to all for their insights.  It's a rare gun thread that adheres to economics and market prospects rather than partisan silliness.


SJ

rkbabang

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Re: Firearms - RGR and AOBC
« Reply #18 on: February 16, 2017, 04:37:56 AM »
Also, even if you are correct and I wrong, this will effect some gun types more than others.  People had the perception that certain rifles that the anti-gun people like to call "assault weapons" because of how they look were in danger of being banned and many stocked up on those, but I don't think the market for handguns, shotguns, or rifles that aren't black and scary looking to the political left will be affected at all by the Obama spike in sales.  Yes, Obama was the world's best firearms salesman and now he's gone, but long term there will be another Obama-like president and gun sales will spike like crazy again.

The main reason I made the argument about Obama is the incredible difference between the financial results of RGR in 2000-2007 period vs 2008-2016. Sales declined 20% from 2000 to 2007. Net earnings actually declined in half. RGR actually suspended their dividend in 2006. In 2005/6 RGR earnings were close to zero.

Then from 2008-2016 sales nearly quadrupled and net earnings grew by a factor of 10. Profit margins improved from 5% to over 10%.

You are really dealing with two totally different companies depending on the political party in power. The political factor is not small at all...its massive. That is assuming I can ascribe all of RGR performance to political factors..its possible there was a turnaround during that time period.

BTW, I am curious about your perspective on Smith&Wesson.

You are correct about politics being a big factor in the industry, which is probably why I've never invested even though I keep looking at these companies over and over again.

You were also correct about S&W a few posts back. This pretty much sums up how I feel.
http://www.lneilsmith.org/smithandwessonmustdie.html

LC

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Re: Firearms - RGR and AOBC
« Reply #19 on: February 16, 2017, 12:18:36 PM »
Also, even if you are correct and I wrong, this will effect some gun types more than others.  People had the perception that certain rifles that the anti-gun people like to call "assault weapons" because of how they look were in danger of being banned and many stocked up on those, but I don't think the market for handguns, shotguns, or rifles that aren't black and scary looking to the political left will be affected at all by the Obama spike in sales.  Yes, Obama was the world's best firearms salesman and now he's gone, but long term there will be another Obama-like president and gun sales will spike like crazy again.

The main reason I made the argument about Obama is the incredible difference between the financial results of RGR in 2000-2007 period vs 2008-2016. Sales declined 20% from 2000 to 2007. Net earnings actually declined in half. RGR actually suspended their dividend in 2006. In 2005/6 RGR earnings were close to zero.

Then from 2008-2016 sales nearly quadrupled and net earnings grew by a factor of 10. Profit margins improved from 5% to over 10%.

You are really dealing with two totally different companies depending on the political party in power. The political factor is not small at all...its massive. That is assuming I can ascribe all of RGR performance to political factors..its possible there was a turnaround during that time period.

BTW, I am curious about your perspective on Smith&Wesson.

You are correct about politics being a big factor in the industry, which is probably why I've never invested even though I keep looking at these companies over and over again.

They come up so well when casually looking at the metrics. When you dig deeper it opens up so many questions (at least for me), that I tossed it aside. No sense trying to flip a coin and see whether sales will stay at high levels or drop off.
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