AP. Lacking any contractual source for covering their positions, investors holding short interest positions in Sturm Ruger will be buying almost 4 million shares of RGR on the opne market beginning this afternoon. Fearing a short squeeze, major short initiators gathered yesterday evening to strategize on covering their positions.
"We thought for sure that Obama was going to stick it to the gun-makers", said one unidentified source. "We pumped millions and millions of dollars into this campaign and I think we've been had". "We were so certain of RGRs demise, that we sold shares without first, um, ah,".
With only days to go until earnings, the short position in RGR is nearly a staggering 50% or 8 million shares. The stock trades under 1 million shares a day. Blowout earning are expected as gun sales accelerated in the 4th quarter. Many gun shops and shows have no inventory and gun makers are ramping up production. Ruger spent $30 million for capital expenditures in the last 90 days, and as a result, production should increase to satisfy the anticipated growth levels.
Valuation. Considering the exponential growth in sales, the current PE of 16 is low. Expected sales increase is 25 to 30% over the next four quarters, and gross margin should be enhanced in many of Ruger's product categories. Ruger has been unable to maintain inventory for its new model 1911, and its longstanding ranch rifle which is equipped with a ten shot magazine. The cloud of gun control should serve to boost sales for at least the next four quarters as the new congress will likely introduce some legistlation to molify its backers, and as the Obama 'executive orders' are challenged throughout 2013.
Ruger might be considering a strategy of hoarding all cash with the intent of buying back more of its shares later this year. This strategy will put the company's currency out of reach of future short attacks and help to divide ownership to funds which may have a philosohical alliance with Ruger.