If Sturm, Ruger & Company, Inc. (NYSE: RGR) doesn't think its stock is a buy, should you? Although the gunmaker's stock gained 8% in the fourth quarter last year, its shares were still down some 15% from the highs they hit during the summer, and about 20% below their 2016 peak.

Despite their lower price, management did not repurchase any shares during the fourth quarter of 2017. The stock is down 12% year to date as of this writing. Should you consider buying shares?

Image source: Sturm, Ruger.

A good reason Ruger didn't ...

Last year was something of an anomalous year for Ruger and the firearms industry. Following an extraordinary run up in 2016, sales largely fell off a cliff last year as consumer demand all but dried up. A National Shooting Sports Foundation analysis of adjusted criminal background checks showed them to be down 11% year over year, in large part because of 2016's outsized gains, but also because retailers were trying to adjust their inventories and generate cash, and manufacturers were engaging in significant discounting to drum up sales.

Data source: National Shooting Sports Foundation. Chart by author.

Ruger itself didn't participate in such promotional efforts, and actually rarely does, as it seeks to protect the premium nature of its firearms and its margins. Last year was a tough year, with its gross profits falling 30% and operating profits tumbling 43%. It might not be so surprising that Ruger was conserving its cash instead of engaging in stock buybacks.

Moreover, unlike Smith & Wesson parent American Outdoor Brands (NASDAQ: AOBC), Ruger pays a dividend to shareholders. However, instead of it being a set rate like you'd find at most other companies that pay a dividend, Ruger fixes its payout as a percentage of its earnings.

Since 2012, it has been at approximately 40% of net income, and last year net income fell to $52 million from $87 million the year before, meaning the cash dividends Ruger paid dropped from $1.73 per share in 2016 to $1.36 per share last year. The payout currently yields 1.9%, which is some 32% lower than a year ago.

RGR Dividend Yield (TTM) data by YCharts

... but why you might want to

Ruger and Smith & Wesson are two of the premier names in the firearms industry and the two largest gunmakers in the country. There's no argument that the industry is at a low point, however, Ruger is especially solid financially, with $63 million in cash and no long-term debt. That gives it the flexibility to make strategic moves, and while it has not signaled any particular decision, management did say it was watching Remington Outdoor's bankruptcy filing with an eye toward being opportunistic if the chance arose.