Firearms - RGR and AOBC

[DooDiligence]

Both have very large short % & ratio (anyone know what institutions?)

 

Why do you guys prefer AOBC?

 

I'm attracted to the clean sheet of RGR & I like the fact that management has clearly stated they don't do guidance or individual owner meetings.

(They seem well managed...)

 

I agree as to dubious moats...

[no_free_lunch]

I just haven't done the work on RGR yet.  AOBC has a PE backward or forward of around 8-9.  It looks like RGR is around 12-13.  Entirely possible that RGR is the better investment but I haven't been able to figure out why RGR is more expensive.  My preference would be that we identify 3 or 4 decent companies and I just build a basket.

[valueventures]

For me, I was initially more interested in AOBC because the valuation was more compelling than RGR. My research was in line with Seeking Alpha articles (Justin Wu and H.A. Capital Management have good write-ups for reference). I feel that concern over firearm demand is overblown and think demand should stabilize more in the long run. While AOBC does not necessarily have a moat, I'm confident that its brand power (S&W) will allow it to preserve market share. The rebranding strategy is a question mark, but the fact that it's more a form of vertical integration than pure inorganic growth gives me solace. This was reiterated on the conference call, as management announced its intent to build a distribution center for all AOBC products to recognize efficiencies and harvest synergies. Management has been prudent with acquisitions in the past and reiterated several times on the call its commitment to gross margins of 37% to 41%. AOBC has been steadily growing its intrinsic value over time, and I feel it will stand to benefit once the tide turns.

[no_free_lunch]

FBI firearm background checks have been strong so far this year.  Definitely down from last years highs but in march april only down 5% or so.  Given where AOBC is trading, it seems the market is pricing in a much larger decline.  I continue to hold AOBC.

 

https://www.fbi.gov/file-repository/nics_firearm_checks_-_month_year.pdf/view

[DooDiligence]

Up over 20% on RGR & holding & would love to see it go 20% below what I paid for it (now, of course...)

 

or

 

Careful what you wish 4...

[no_free_lunch]

There was some recent analyst commentary on AOBC.

 

Aegis analyst Rommel Dionisio initiated coverage of the gunmaker with a Buy rating and a price target of $25. AOBC closed Monday at $18.78.

..

“Firearms manufacturers have seen several difficult quarters in a row, as retailer inventory inventories became bloated last year after dealers incorrectly forecasted a Clinton election win and resulting demand surge,” he said in an analyst note.

..

After acquiring a laser sight and toolmaker last year, the newly diversified company last November changed its iconic name to American Outdoor Brands. Among other things, it sells safes and leg irons.

..

“The firearms industry has been a lucrative one for well over a decade, growing on average at mid- to high-single digits annually,” Dionisio wrote.

 

“Given a wave of new firearms purchasers in the past several years, including women who now comprise roughly half of all first-time buyers, combined with the significant potential for loosening federal gun control laws given the Republican-led presidency and Congress, the firearms industry should see steady growth for years to come.”

 

https://finance.yahoo.com/news/sure-shot-analyst-initiates-american-134347339.html

 

The next quarterly earnings come out on Sept 7 for AOBC, at that point we will have a better idea of what impact the slowdown actually has.  Feb-Apr earnings weren't bad at all, with the company selling at around a PE of 9 if you annualize those numbers.  I continue to think that the market has over-responded to the slowdown.  The company has pulled way back and is now selling at below what I initiated at.

[johnny]

https://www.remingtonoutdoorcompany.com/sites/default/files/ComprehensiveFinancialRestructuring.pdf

 

Now that we're rolling a year off of Trump, I'm more interested in looking around this space. Did everybody get shaken out already?