AMMO, Inc.: A Gem In A Very Unpopular Niche

May 25, 2022 2:11 PM ETAMMO, Inc. (POWW)CSML, OMFS, IWC, NUSC, EES, VTWG, AVSC, IWO, ISCG, VTWO, IWM, UWM79 Comments15 Likes

Summary

  • Today, we take an in-depth look at AMMO, Inc., which is in a very unpopular niche of the market at the moment.
  • However, the company is nicely profitable and seeing explosive revenue growth.
  • A full investment analysis is provided in the paragraphs below.
  • Looking for a portfolio of ideas like this one? Members of The Busted IPO Forum get exclusive access to our model portfolio. Learn More »

Different types of ammunition on a black background. Sale of weapons and ammunition. The right to hold a gun.

MartinFredy/iStock via Getty Images

The fascination of shooting as a sport depends almost wholly on whether you are at the right or wrong end of the gun."― P.G. Wodehouse

Today, we take our first in-depth look at AMMO, Inc. (NASDAQ:POWW). The stock of this ammunition manufacturer has hit the skids despite impressive revenue growth and is also nicely profitable. Not a well-thought-of sector at the moment given the recent Texas school mass shooting. But from an investment perspective, is it time to buy the dip? We try to provide the answer to that question via the analysis below.

POWW stock chart

Seeking Alpha

Company Overview

AMMO, Inc. is based just outside Phoenix, AZ. The company designs and manufactures various ammunition products for law enforcement, military, sport shooting, and self-defense.

Customer Base

January Company Presentation

These include:

  • StelTH Subsonic ammunition that is designed primarily for suppressed firearms.
  • Jesse James ammunition, a jacketed hollow point projectile for self-defense.
  • STREAK Visual Ammunition that enables shooters to see the path of the bullets fired by them
  • One Precise Shot ammunition, which is designed to meet various engagement scenarios experienced by law enforcement personnel in the line of duty

Product Portfolio

January Company Presentation

In addition, the company offers hard armor piercing incendiary rounds; and ammunition casings for pistol ammunition through large rifle ammunition as well as operates the website Gunbroker.com which the company recently acquired. The stock currently trades just above four bucks a share and sports an approximate market capitalization of $450 million.

Company History

January Company Presentation

Third Quarter Numbers

On February 14th, the company reported its third quarter results. Profits came in at 14 cents a share on a non-GAAP basis, a nickel above the consensus. Revenues rose nearly 290% on a year-over-year basis to just under $65 million, inline with expectations. A large portion of the revenue increase came from the recent purchase of Gunbroker.com, the largest online marketplace serving the firearms and shooting sports industries. This line of business contributed $17.6 million worth of revenues during the quarter. Ammo sales from the rest of the company totaled $44.1 million versus $12.8 million in 3Q2021.

Gunbroker acquisition

January Company Presentation

Some other interesting tidbits from the quarter.

  • 100% of the company's production for 2022 has been pre-sold.
  • Adjusted EBITDA was $20.1 million versus $2.4 million in the same period a year ago.
  • Gross profit was $22.5 million in the third quarter versus $3.3 million in the year-earlier period.
  • Gross profit margin rose to 34.8% in the third quarter from just 20.1% in the same period a year ago.
  • Operating income for the third quarter of fiscal 2022 was $10.6 million, compared to an operating loss of $0.4 million in last year's third quarter

Leadership also reiterated FY2022 (which ended March 31st) guidance of revenue of at least $250 million and adjusted EBITDA of $80 million.

Analyst Commentary & Balance Sheet

The stock gets little coverage from Wall Street, partially because of the ESG movement. So far in 2022, only Roth Capital has chimed in on the stock. It maintained its Buy rating on POWW on February 2nd, but did lower its price target two bucks a share to $9 at that time.

There has been no insider activity in the shares so far in 2022. Approximately 14% of the outstanding float in the stock is currently held short. The company ended FY2021 with approximately $27 million worth of cash and marketable against negligible debt. Leadership also added $30 million to a stock purchase authorization program.

Verdict

The current analyst consensus has AMMO, Inc. earnings around the same as in FY2022 (30 to 35 cents a share) even as sales rise more than 25% to just north of $310 million in FY2023. Earnings growth will be subdued in FY2023 as the company is building a new 160,000 square foot state-of-the-art facility. The building is running on schedule and currently expected to open in the summer of 2022, with capacity approaching 1 billion rounds annually.

Given the demand for its products and growth prospects, AMMO, Inc. seems undervalued. The balance sheet is pristine, a new buyback authorization is in effect, and capacity will go up greatly when its new facility opens in a few months. With a divided Congress, there is little chance of significant legislation into the upcoming mid-terms. And given current projections of a political shift in those elections, little to no chance after the mid-terms. Options are liquid and lucrative on this name. Therefore, I have a fairly decent sized position in AMMO, Inc. using simple covered call orders. Fourth quarter results should be out shortly.

Doesn't matter how big the gun is if you don't know where to point it."― Leigh Bardugo, Six of Crows

Author's note: I present and update my best small-cap Busted IPO stock ideas only to subscribers of my exclusive marketplace, The Busted IPO Forum. Try a free 2-week trial today by clicking on our logo below!

This article was written by

Busted IPO Forum profile picture
7.63K Followers
Profit from 'Busted IPOs' - attractive but unloved small and midcap stocks

The Busted IPO Forum founded by Bret Jensen, is a hypothetical $200K portfolio built of stocks that have been public for 18 months to five years that are significantly under their offering price. Many times after the initial analyst hyperbole has died and lockups have expired, these same companies can be had for .30 to .50 cents on the dollar from when the shares went public. As lucrative as this niche has been for my portfolio over the years, a service or newsletter has not existed that covered this segment of the market -- until now! The goal in creating the Busted IPO Forum is to build a portfolio of 15-20 small cap and mid cap busted IPOs which consistently outperform the Russell 2000 over time. As of 07/02/2021 our model portfolio has generated an overall return of 73.84% substantially above the 52.37% gain from the Russell 2000 over the same time frame.

• • •

Specializing in profiling high beta sectors, Bret Jensen founded and also manages The Biotech Forum, The Insiders Forum, and the Busted IPO Forum model portfolios. Finding “gems” in the biotech and small-cap stock sectors, these highly volatile spaces proven hugely successful have empowered Bret Jensen's own investing portfolio.

• • •

Learn more about Bret Jensen's Marketplace offerings:

The Insiders Forum | The Biotech Forum | Busted IPO Forum

Follow

Disclosure: I/we have a beneficial long position in the shares of POWW either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum.

Recommended For You

Comments (79)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.