Closed my RGR call option position

Given today’s surge in stock price, I closed my RGR call position (my calls are deep-in-the-money and expire two days from now).  I think the stock is fairly valued at these levels (or arguably a little undervalued if you really, really like the CEO).  What I missed originally is that the gun market has mini-cycles because consumer demand has random surges related to panic buying.  I wish I had waited for the shares to trade at depressed prices (e.g. the company is buying back shares and the CEO isn’t selling) before putting on a position.

Over the long term, I think Ruger will do extremely well as long as Michael Fifer is the CEO.  If the stock falls below $40, there is a strong chance that I will have a long position again.

*Disclosure:  No position.
EDIT (4/15/2015): When I first wrote about the stock in Nov 2013, the shares were around $74.   The overall trade worked out ok because I was buying the dip as RGR stock fell below $40.  The current price is around $54.  Because I owned calls, the huge drop in share price was not a big deal.

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Google Trends

Google Trends may be an interesting tool for investors.

1. It allows investors to gather data on a company that’s fresher than the last quarter’s earnings release.  This can be helpful in turnaround situations such as Aeropostale (ARO) and Cafepress (PRSS).
2. Having leading earnings indicators can be helpful for manufacturing companies (e.g. RGR, SWHC) where there is not much data on consumer demand due to fluctuating inventory at the retail and distributor level.
3. In rare cases where fraud is suspected, Google Trends may provide some indications about actual revenues.

Here is an example of Google Trends in action:

Portfolio update November 2014

Overall, my portfolio is down several percent YTD mainly due to a longshot bet on Yongye put options and mark-to-market losses on Altisource common shares.

On the short side, shorting common stock has worked incredibly well for me this year.  Unfortunately, my gains were offset by losses on Yongye puts.

On the long side, I made massive bets on Kinder Morgan warrants and Altisource common stock.  The former has been profitable while the latter hasn’t.  Altisource has been beaten down -53% YTD and I have been adding to my position on the way down.  While Altisource continues to have absurd earnings growth, its share price has fallen dramatically due to fears that regulation may hurt the company.

Ruger’s upcoming quarters

This is a speculation on my part, but I think that Q3 and/or Q4 will be good quarters for Ruger.

1. Adjusted NICS data is recovering and catching up to the very high levels of 2013.
2. Ruger has introduced many products in Q3, the most notable one being an entry-level AR-15 rifle.  2014 Q1 introduced 1 new model, Q2 introduced 3 new models, while Q3 introduced 7 new models.

While I don’t like short-term trades, this may be a compelling short-term trade because the next two quarterly earnings releases may serve as a catalyst.  The April 2015 call options may be a way to play this because the implied volatility is very low (below 30).  There are a few long-shot scenarios that could cause the options to go up several times in value.  If Ruger demonstrates earnings growth, the stock’s multiple could go from 9.5 to a growth stock multiple like 15-20+.  Or, there could be a short squeeze because the short interest in Ruger is extremely high (those who own call options could randomly get lucky).

Ruger Q2 2014 update – Part 2

I don’t think that investors should panic over Ruger’s drop in EBITDA and distributor orders.  Going forward, I see the company gaining market share as its continues to release new products (which it has done so in the past).  Volumes and profitability should recover and grow.

That being said, a huge contraction in the gun market or intense competition can hurt Ruger shareholders.  I have no special insight into what will happen to the overall gun market.

Ruger Q2 2014 update

Ruger is seeing weak demand for its products and is slowing down production in response.

The press release and quarterly financial statements can be found on the company’s website (PDF).  The 10-Q is on EDGAR.

Sturm, Ruger accounting notes

Ruger is a rapidly growing company with incredibly high returns on capital (over 60%).  This is a follow-up to my original post on the company.

Generally speaking, their accounting is conservative.