AMMO, Inc. (NASDAQ: POWW) stock surged in after-hours trading after posting record-setting revenues of $44.5 million and sequential adjusted earnings per share (EPS) of $0.13. For investors, the news gets even better, with AMMO saying that its revenue-generating momentum is not slowing down. In fact, guidance is exceptionally bullish, calling for revenues to increase to upwards of $51 million in its current quarter, a more than 14% gain from the record numbers posted. Moreover, positive earnings into the back half of 2021 are expected as well, adding to the roughly 669% increase posted on a comparative quarterly basis. Better still, the optimistic tone during management’s commentary also added fuel to the rally. Notably, AMMO raised its year-end revenue guidance, expecting to post $210 million in its fiscal year, up from prior guidance suggesting a $190 million run rate. The company said it is seeing accelerating demand for its ammunition products.
There, AMMO said that its targeted markets, including sports, law enforcement, and military, are each expected to contribute higher revenues in the coming quarters following a surge in new gun permit applications and the continued shortage of ammunition. Military contracts for AMMO, in particular, could deliver a tremendous boost to revenues.
Further, expect accretive revenues to continue from its Gunbroker.com asset, which it acquired in a $240 million deal earlier this year. Gunbroker.com brings a roughly six million person active user base to AMMO, becoming ideal target market candidates to drive general ammunition products.
Notably, AMMO points out that while Gunbroker adds substantial value in several verticals, its ammunition sales to users accounted for only about 3% of its total sales last year. Hence, they expect extraordinary growth opportunities to be realized from that acquired potential. And with the average gun owner spending roughly $100 per year to train and buy supplies, they are probably right even if they only attracted 20% of that six million person market.
The bulls are further feeding on additional guidance that AMMO expects strong demand across its entire portfolio of high-performance products to continue into the back half of this year. Keep in mind, they raised estimates twice in as many quarters based on increased visibility targeting surging demand. They also noted that revenues will likely benefit from an aggressively targeted marketing strategy, expanded production capacity, new defense contracts, and, as noted, higher sales from its continued integration with Gunbroker.com.
To those already following AMMO, the record-setting revenues are no surprise. The guidance is credible. However, the earnings beat is reassuring to AMMO’s pace of growth. They also expect the earnings news puts the company back on the trail to reach its 52-week high of $10.37, a roughly 44% gain from current levels at press time. Hence, longs may want to stay the course.
For new investors, current share prices present a compelling opportunity. And even with a more than $791 million market cap, revenues and EPS multiples should take shares higher. Part of AMMO’s recent decline may have more to do with being added to the Russell indexes, where market pressures on any given day can take stocks down indiscriminately. Many that already follow AMMO believe that to be the case. Coming off a record-setting quarter buoyed by bullish guidance, which they met, supports that thesis. In any case, that’s now history. And AMMO’s future looks better than ever.
It’s also fair to suggest that AMMO is in hyper-growth mode. Compared to last year, its 354% increase over its comparative quarter and a more than 409% increase in revenues drive that point home. The momentum generated also puts accelerating growth in its crosshairs.
Know this, too. Revenues are solid, especially for a small-cap company. And while they reached $44.5 million last quarter they are expected to jump to $51 million in its current quarter. As noted, growth reported also follows record-breaking sales from last year. Reflecting back to its year-end report, AMMO posted a 409% increase in comparative revenues, increased gross profit margins by 179%, cut operating expenses as a percentage of sales by 58%, and booked a 296% increase in EBITDA to $4.8 million over the same period last year. It was also its first profitable quarter in its history, earning an adjusted EPS of $0.04. To those liking triple-digit percentage growth, that amounted to a 167% increase over last year. This quarter showed momentum is in place, with adjusted EPS rising more than 669% on a comparative basisto $0.13.
Other factors make its case more compelling.
Monetizing Its Assets
Notably, investors are yet to see the full impact of its $240 million transformative acquisition of Gunbroker.com. That deal, as noted, is expected to help push revenues upwards of $210 million by the end of its fiscal year. Expectations are for those to move substantially higher as implementation continues. Further, the revenues earned should be immediately impactful from synergies and economies of scale inherent to that deal.
And as noted, despite the enormous impact that Gunbroker brings, it’s still only a part of the bullish proposition. AMMO should also benefit from near-unprecedented US demand for ammunition that shows no signs of slowing down. In fact, the most recent reports suggest that trend is accelerating, with gun permit applications are soaring to near all-time highs and store shelves empty of ammunition.
Of course, all of that is excellent news for AMMO. Even better, it only represents the retail consumer opportunity. Other big-ticket sales are in its sights as well from its military and law-enforcement clients that, through its multi-channel distribution network, targets a roughly $30 billion combined market opportunity. And with guidance suggesting deals may already be in the queue, even a small share of the market can be massive in size. But as a top-five ammunition company, don’t expect the piece to be too small, either.
Add that to the more than 750 million rounds of ammunition AMMO expects to deliver this year, its current valuation appears to substantially undervalue its market position. From there, add in AMMO’s retail presence, and the value proposition becomes even more compelling.
Retail And Brick And Mortar
There, AMMO is positioned to capitalize on potentially massive revenue-generating opportunities from having products available in more than 1600 retail locations, including DICK’S Sporting Goods (NYSE: DKS) and other national brands. Moreover, its soon completed manufacturing facility expected to triple its production capacity can increase that count even more.
Further, recent marketing and operational initiatives connected AMMO with more than 67,000 dealers, added over 1,000 new customers, and processed over $80 million in booked orders last year. They helped create a 125% increase in order backlog for AMMO as well. Notably, the current backlog at AMMO sits at a staggering $238 million. And while backlogs don’t count as revenues yet, they do turn into sales, giving investors visibility into at least two quarters.
Perhaps the better news is that the backlog gets replenished even with AMMO producing and selling ammunition as fast as it can. Thus, as noted, visibility remains strong. Also, know that with high demand comes pricing power. Combine that with AMMO being the manufacturer, marketer, and seller of its products, those high-powered revenues can also be met with high-margin and high gross profits.
There’s certainly a lot to like. And, still, while AMMO had a growth spurt during the past three quarters, its mission is to get even bigger. Obviously, they are succeeding in that endeavor.
Surging Growth In Its Crosshairs
And no matter how investors want to value AMMO, whether through industry multiples or by the pace of growth, its share price appears absurdly low at current levels. Yes, its current 115% year-to-date gain is impressive. However, AMMO is a company not only in growth mode but in hyper-growth mode. Thus, to value them alongside industry peers may be connecting them to companies already in the maturing stages. That’s not fair to AMMO or its investors. AMMO is worthy of a higher growth multiple.
And its data supports that premise. Record sales, high margins, selling into multiple billion-dollar markets, and potentially being on the verge of signing massive military deals make that case. Further, its balance sheet is strong, and its capital structure, leveraging its share price, allows them to capitalize on new opportunities without significant dilution.
Of course, AMMO is more than doing its part and telling its story in actions rather than only words. They are hitting milestones, raising guidance, increasing production capacity, and expanding their sales opportunities into new markets. To anyone not seeing the value proposition presented, please review the notes above.
AMMO, like its name implies, can explode higher.
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