Author Topic: Firearms - RGR and AOBC  (Read 9441 times)

valueventures

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Firearms - RGR and AOBC
« on: February 12, 2017, 09:30:30 AM »
Hi all,

I have recently started researching RGR and AOBC and am considering an investment. Both have been punished by the market since the election and appear cheap. I am expecting firearm demand to rebound long-term and feel that these companies stand to benefit. Has anyone else looked into RGR and AOBC and, if so, what are your thoughts?



bskptkl

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Re: Firearms - RGR and AOBC
« Reply #1 on: February 12, 2017, 09:37:13 AM »
You might want to include VSTO - just written up last week on VIC.
I have no opinion on any of these.

no_free_lunch

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Re: Firearms - RGR and AOBC
« Reply #2 on: February 12, 2017, 10:20:43 AM »
RGR seems ball park reasonable.  Unless there is growth it's hard to justify a much higher price.  I would be concerned about competition.  How hard is it to get into this industry?  Couldn't there be new competitors?  You combine that with a market that is probably mnore or less at a plateau and I am skeptical.

It has come down a lot so I could be wrong.

StubbleJumper

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Re: Firearms - RGR and AOBC
« Reply #3 on: February 12, 2017, 11:56:16 AM »
I've never understood the firearms industry.  My understanding is that a gun is basically good forever, unless you are the type of person who shoots a ridiculous number of rounds every week, or you don't maintain it.  So where's the demand from?  Is it from a growing US population which increases demand for firearms?  Is it from an increasing penetration of firearms (ie, the percentage of households who have a gun)?  Is it from increasing the number of firearms per owner-household?  It really strikes me that this should be a pretty mature industry with not much demand.


Now, contrast that with the auto industry which I understand better.  Cars wear out and need to be replaced.  The number of drivers increases with population, and the number of cars per household has gone up.


So, is there anybody who knows about the firearms market who can shed some light on market prospects?


SJ

Pelagic

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Re: Firearms - RGR and AOBC
« Reply #4 on: February 12, 2017, 03:52:02 PM »
I've never understood the firearms industry.  My understanding is that a gun is basically good forever, unless you are the type of person who shoots a ridiculous number of rounds every week, or you don't maintain it.  So where's the demand from?  Is it from a growing US population which increases demand for firearms?  Is it from an increasing penetration of firearms (ie, the percentage of households who have a gun)?  Is it from increasing the number of firearms per owner-household?  It really strikes me that this should be a pretty mature industry with not much demand.


Now, contrast that with the auto industry which I understand better.  Cars wear out and need to be replaced.  The number of drivers increases with population, and the number of cars per household has gone up.


So, is there anybody who knows about the firearms market who can shed some light on market prospects?


SJ

Greater penetration across demographics. The firearm industry is making a concerted effort to attract women and millennials to the sport as well as groups where gun ownership isn't traditionally part of their culture. Essentially, we're seeing a change in the industry from the older white male demographic that has historically enjoyed firearms to a more inclusive slice of the American population.

One gun is like one pair of shoes, you don't have just one. Gun owners love to show off their newest acquisition and even if it only gets 20 rounds through it all year it will be in their gun safe as part of their collection. Guns aren't terribly expensive and a day at the range with friends can be thought of like going golfing. Gun owners want to have a collection of "clubs" to take to the range with them and shoot as each is different. Between an increasing slice of the American population interested in shooting sports, active efforts by the industry to attract a more diverse demographic, and the easy availability of a wide range of firearms I think there's a case to be made for industry wide growth.

Another factor that helps is great liquidity in the used market for guns. As you mentioned, they don't wear out, especially given the use conditions the average American gun owner puts them through, and with proper maintenance a firearm can last several decades and hold its value relatively well. The advent of online platforms that allow for sales between users helps spur the purchase of more new firearms - it's easier to justify a new purchase if there's a healthy used market for the product one can sell it into with little depreciation. I also think there's a novelty factor to just owning different guns, they all shoot a little differently and gun owners want to have choices.

With that said, the industry has a vested interest in marketing to new users, if that starts to die out or shooting sports become less popular growth will slow down. Gun owners interested exclusively in home defense are a separate and much smaller subset of users and I think a lot of your points make sense with them in mind but users interested in shooting sports and to a lesser extent hunting will continue to buy new (or new to them used) firearms well in excess of their "needs" for hunting or sporting.

rkbabang

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Re: Firearms - RGR and AOBC
« Reply #5 on: February 13, 2017, 07:23:51 AM »
I've never understood the firearms industry.  My understanding is that a gun is basically good forever, unless you are the type of person who shoots a ridiculous number of rounds every week, or you don't maintain it.  So where's the demand from?  Is it from a growing US population which increases demand for firearms?  Is it from an increasing penetration of firearms (ie, the percentage of households who have a gun)?  Is it from increasing the number of firearms per owner-household?  It really strikes me that this should be a pretty mature industry with not much demand.


Now, contrast that with the auto industry which I understand better.  Cars wear out and need to be replaced.  The number of drivers increases with population, and the number of cars per household has gone up.


So, is there anybody who knows about the firearms market who can shed some light on market prospects?

As mentioned above demographic changes, women are starting to get into shooting and self defence training like never before.  That and the liberalizing of concealed carry laws are changing the types of firearms which are in demand.  Both of these factors are driving a shift towards concealability as being important.   Ruger has a few highly regarded firearms in this space.  I actually just purchased a Ruger LCP II.  It is a .380 that is highly concealable, only 0.75" wide so perfect for a pocket or a purse.  It just came out a few months ago and is a vast improvement over the original Ruger LCP.  On the LCP II the slide locks back after your last round (important for knowing that you've fired your last round and for ease of reloading quickly), the trigger has a Glock-like trigger safety, and I've heard that it is easier to shoot (less snappy with a smother/lighter trigger pull) than the original.  I've never shot the original LCP, but the LCP II is very nice to shoot.  I've actually starting looking at RGR a little bit after buying it, but haven't pulled the trigger yet.


EDIT:  Ruger LCP II
Also their LC9 is not much larger and chambered in 9MM, just a little too big for pocket carry, but still easily concealed inside the waistband or in a purse and of course 9mm is a more effective caliber.   http://www.ruger-firearms.com/products/lc9s/models.html
« Last Edit: February 13, 2017, 07:51:57 AM by rkbabang »

Dustin T

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Re: Firearms - RGR and AOBC
« Reply #6 on: February 13, 2017, 07:46:48 AM »
Firearms do wear out. It Depends on the caliber, but its somewhere around 10,000+ rounds so it's usually never reached. Firearms hold their value very well if they are treated properly. Values usually drop 20% when you walk out of the store but then slowly raise with inflation over the years with some models doing better or worse.

I own several Ruger's and they make excellent products.
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rukawa

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Re: Firearms - RGR and AOBC
« Reply #7 on: February 14, 2017, 04:37:03 PM »
RGR seems ball park reasonable.

Why is it reasonable? It looks like a high quality business. I would have expected the multiple to be around at least 18. The current value only makes sense if there is negative growth. It definitely looks cheap. As does AOBC. There is a strong expectation that sales where high due to uncertainty about the election and should trend lower going forward.

rukawa

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Re: Firearms - RGR and AOBC
« Reply #8 on: February 14, 2017, 04:55:27 PM »
Looking at Value Line it appears that RGR did pretty badly from about 2002-2008. AOBC has an even longer bad period from about 2001-2010. RGR seems to be the better company.

Its a real question as to how much of the growth from 2008-2016 is due to Obama scaring gun-owners and how much is due to gun companies reaching out to new demographics. Ruger's results seems to coincide pretty much with the Bush and Obama administrations. I would say to understand the valuation you have to estimate how much gun sales are driven by political fears.

http://www.forbes.com/sites/frankminiter/2016/04/12/the-gun-industry-says-it-has-grown-158-since-obama-took-office/#6b76d12a56ae

Quote
The gun industry published a report saying itís not only doing just fine, but has actually grown by 158% since 2008. The National Shooting Sports Foundation (NSSF), the trade association for firearms manufacturers, reported that the total economic impact of the firearms and ammunition industry in the U.S. increased from $19.1 billion in 2008 to $49.3 billion in 2015. The NSSF also reported that, in that same time period, the total number of full-time jobs related to gun making in the U.S. rose from about 166,000 to almost 288,000.
« Last Edit: February 14, 2017, 05:01:02 PM by rukawa »

no_free_lunch

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Re: Firearms - RGR and AOBC
« Reply #9 on: February 14, 2017, 05:00:05 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.
« Last Edit: February 14, 2017, 05:01:57 PM by no_free_lunch »