Intrinsic value of Sturm Ruger - RGR

Previous Close

$56.99

  Intrinsic Value

$43.16

stock screener

  Rating & Target

sell

-24%

Previous close

$56.99

 
Intrinsic value

$43.16

 
Up/down potential

-24%

 
Rating

sell

We calculate the intrinsic value of RGR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  533
  545
  559
  575
  592
  611
  632
  655
  679
  705
  733
  763
  794
  828
  864
  901
  941
  984
  1,029
  1,076
  1,126
  1,178
  1,234
  1,292
  1,354
  1,418
  1,487
  1,558
  1,634
  1,713
Variable operating expenses, $m
  314
  322
  330
  339
  349
  361
  373
  386
  401
  416
  432
  450
  469
  488
  509
  532
  555
  580
  607
  635
  664
  695
  728
  762
  799
  837
  877
  919
  964
  1,011
Fixed operating expenses, $m
  144
  147
  151
  154
  157
  161
  164
  168
  172
  175
  179
  183
  187
  191
  195
  200
  204
  209
  213
  218
  223
  228
  233
  238
  243
  248
  254
  259
  265
  271
Total operating expenses, $m
  458
  469
  481
  493
  506
  522
  537
  554
  573
  591
  611
  633
  656
  679
  704
  732
  759
  789
  820
  853
  887
  923
  961
  1,000
  1,042
  1,085
  1,131
  1,178
  1,229
  1,282
Operating income, $m
  74
  76
  79
  82
  86
  90
  95
  101
  107
  114
  121
  130
  139
  148
  159
  170
  182
  195
  209
  223
  239
  256
  273
  292
  312
  333
  356
  380
  405
  432
EBITDA, $m
  96
  98
  101
  105
  109
  114
  120
  127
  134
  142
  150
  160
  170
  181
  193
  206
  219
  234
  249
  266
  284
  302
  322
  343
  366
  390
  415
  442
  470
  500
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  74
  76
  79
  82
  85
  90
  94
  100
  106
  113
  120
  128
  137
  147
  157
  168
  180
  192
  206
  220
  236
  252
  270
  288
  308
  329
  351
  374
  399
  425
Tax expense, $m
  20
  21
  21
  22
  23
  24
  25
  27
  29
  30
  32
  35
  37
  40
  42
  45
  49
  52
  56
  59
  64
  68
  73
  78
  83
  89
  95
  101
  108
  115
Net income, $m
  54
  56
  57
  60
  62
  65
  69
  73
  77
  82
  88
  94
  100
  107
  115
  123
  131
  140
  150
  161
  172
  184
  197
  210
  225
  240
  256
  273
  291
  310

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  279
  285
  293
  301
  310
  320
  331
  343
  356
  369
  384
  399
  416
  434
  452
  472
  493
  515
  539
  564
  590
  617
  646
  677
  709
  743
  779
  816
  856
  897
Adjusted assets (=assets-cash), $m
  279
  285
  293
  301
  310
  320
  331
  343
  356
  369
  384
  399
  416
  434
  452
  472
  493
  515
  539
  564
  590
  617
  646
  677
  709
  743
  779
  816
  856
  897
Revenue / Adjusted assets
  1.910
  1.912
  1.908
  1.910
  1.910
  1.909
  1.909
  1.910
  1.907
  1.911
  1.909
  1.912
  1.909
  1.908
  1.912
  1.909
  1.909
  1.911
  1.909
  1.908
  1.908
  1.909
  1.910
  1.908
  1.910
  1.908
  1.909
  1.909
  1.909
  1.910
Average production assets, $m
  106
  108
  111
  114
  118
  122
  126
  130
  135
  140
  146
  152
  158
  165
  172
  179
  187
  196
  205
  214
  224
  234
  246
  257
  269
  282
  296
  310
  325
  341
Working capital, $m
  52
  53
  54
  56
  57
  59
  61
  63
  66
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  120
  125
  131
  138
  144
  151
  158
  166
Total debt, $m
  1
  2
  4
  5
  7
  9
  11
  14
  16
  19
  22
  25
  28
  32
  35
  39
  43
  48
  53
  57
  63
  68
  74
  80
  86
  93
  100
  107
  115
  124
Total liabilities, $m
  55
  57
  58
  60
  61
  63
  66
  68
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162
  169
  178
Total equity, $m
  224
  229
  235
  241
  249
  257
  266
  275
  285
  296
  308
  320
  334
  348
  363
  379
  396
  413
  432
  452
  473
  495
  518
  543
  569
  596
  625
  655
  686
  720
Total liabilities and equity, $m
  279
  286
  293
  301
  310
  320
  332
  343
  355
  369
  384
  399
  416
  434
  453
  472
  494
  515
  539
  564
  590
  617
  646
  677
  709
  743
  779
  817
  855
  898
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.020
  0.030
  0.040
  0.040
  0.050
  0.060
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.160
  0.160
  0.170
  0.170
Adjusted equity ratio
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  54
  56
  57
  60
  62
  65
  69
  73
  77
  82
  88
  94
  100
  107
  115
  123
  131
  140
  150
  161
  172
  184
  197
  210
  225
  240
  256
  273
  291
  310
Depreciation, amort., depletion, $m
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Funds from operations, $m
  75
  77
  80
  82
  86
  90
  94
  99
  104
  110
  117
  124
  132
  140
  149
  158
  169
  180
  191
  204
  217
  231
  246
  262
  279
  296
  315
  335
  356
  379
Change in working capital, $m
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Cash from operations, $m
  74
  76
  78
  81
  84
  88
  92
  97
  102
  108
  114
  121
  129
  137
  145
  155
  165
  175
  187
  199
  212
  226
  241
  256
  273
  290
  309
  328
  349
  371
Maintenance CAPEX, $m
  -21
  -21
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
New CAPEX, $m
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Cash from investing activities, $m
  -23
  -23
  -25
  -25
  -26
  -28
  -28
  -29
  -31
  -32
  -34
  -35
  -36
  -39
  -40
  -42
  -44
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -63
  -67
  -70
  -73
  -77
  -81
Free cash flow, $m
  52
  52
  54
  56
  58
  60
  64
  67
  71
  76
  81
  86
  92
  98
  105
  113
  121
  130
  139
  149
  159
  171
  183
  195
  209
  223
  239
  255
  272
  290
Issuance/(repayment) of debt, $m
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Total cash flow (excl. dividends), $m
  53
  54
  55
  57
  60
  62
  66
  70
  74
  78
  84
  89
  95
  102
  109
  117
  125
  134
  144
  154
  164
  176
  188
  201
  215
  230
  246
  262
  280
  298
Retained Cash Flow (-), $m
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
Prev. year cash balance distribution, $m
  11
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  59
  49
  49
  51
  52
  54
  57
  60
  64
  67
  72
  77
  82
  88
  94
  101
  108
  116
  125
  134
  144
  154
  165
  177
  189
  203
  217
  232
  248
  265
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  57
  44
  43
  42
  41
  39
  39
  38
  36
  35
  34
  33
  31
  29
  28
  26
  24
  21
  19
  17
  15
  13
  11
  9
  7
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Sturm, Ruger & Company, Inc. is engaged in the design, manufacture, and sale of firearms to domestic customers. The Company operates through two segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a range of federally licensed, independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding (MIM) parts. The Company's design and manufacturing operations are located in the United States. The Company primarily offers products in three industry product categories: rifles, pistols, and revolvers. The Company's firearms are sold through independent wholesale distributors, principally to the commercial sporting market. The Company manufactures firearm products under the Ruger name. The Company also manufactures and sells accessories and replacement parts for its firearms.

FINANCIAL RATIOS  of  Sturm Ruger (RGR)

Valuation Ratios
P/E Ratio 12.2
Price to Sales 1.6
Price to Book 4
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 15.2
Growth Rates
Sales Growth Rate 20.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20.7%
Cap. Spend. - 3 Yr. Gr. Rate -8.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 26.2%
Ret/ On Assets - 3 Yr. Avg. 20.9%
Return On Total Capital 35.2%
Ret/ On T. Cap. - 3 Yr. Avg. 28.9%
Return On Equity 35.2%
Return On Equity - 3 Yr. Avg. 28.9%
Asset Turnover 2
Profitability Ratios
Gross Margin 33.1%
Gross Margin - 3 Yr. Avg. 31.8%
EBITDA Margin 25.8%
EBITDA Margin - 3 Yr. Avg. 22.3%
Operating Margin 20.2%
Oper. Margin - 3 Yr. Avg. 15.8%
Pre-Tax Margin 20.5%
Pre-Tax Margin - 3 Yr. Avg. 16.1%
Net Profit Margin 13.1%
Net Profit Margin - 3 Yr. Avg. 10.5%
Effective Tax Rate 36%
Eff/ Tax Rate - 3 Yr. Avg. 34.3%
Payout Ratio 37.9%

RGR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RGR stock intrinsic value calculation we used $522.256 million for the last fiscal year's total revenue generated by Sturm Ruger. The default revenue input number comes from 0001 income statement of Sturm Ruger. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RGR stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for RGR is calculated based on our internal credit rating of Sturm Ruger, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Sturm Ruger.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RGR stock the variable cost ratio is equal to 59%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $141 million in the base year in the intrinsic value calculation for RGR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Sturm Ruger.

Corporate tax rate of 27% is the nominal tax rate for Sturm Ruger. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RGR stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RGR are equal to 19.9%.

Life of production assets of 3 years is the average useful life of capital assets used in Sturm Ruger operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RGR is equal to 9.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $230.149 million for Sturm Ruger - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 17.458 million for Sturm Ruger is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Sturm Ruger at the current share price and the inputted number of shares is $1.0 billion.

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