AMMO Inc. (NASDAQ: POWW) shares surged in June, higher by 31% heading into the abbreviated holiday trading week. Investors are encouraged by a series of positive updates from the company and by the stock’s inclusion into the Russell 2000 and Microcap index on Monday. Most recently, POWW confirmed guidance for a 400% increase in comparative quarterly revenues, with further guidance suggesting they will deliver $62 million in revenues in FY2021. If so, that represents a nearly 319% increase over the $14.8 million posted during its past fiscal year ending June 30th. Better still, this rally should continue. *(share price at close of trading 6/25/21)
Keep in mind, shares have been trading bullishly since the start of the year, with its $9.00 closing price on Friday representing a year-to-date gain of more than 172%. The move higher gained momentum after POWW announced its transformational acquisition of GunBroker.com, a deal that adds millions of registered users to its AMMO family. Then, news broke that institutional and insider ownership now represents more than 50% of the shares outstanding. A recent Fintel report showed that 91 institutions now own stock. That may have increased following the Russell re-balance last week.
Still, while the Russell inclusions and institutional ownership levels add a definite spark of interest, a convergence of other positive events makes AMMO stock a compelling investment opportunity. And as noted in early June, that opportunity just got considerably more expensive. However, this stock still appears to be substantially undervalued, even after its June surge. Here’s why:
Bullish Sentiment For AMMO, Inc
Indeed, a series of updates from the company has generated decidedly bullish sentiment. Still, while investors may be pushing shares higher, AMMO is earning every bit of its gains. Undoubtedly, its transformative $240 acquisition of GunBroker.com adds immediate revenue-generating firepower to the company. Moreover, as noted, the deal also brings millions of registered GunBroker.com users into the AMMO family. Hence, with AMMO doing very well pre-acquisition, expectations by some call for exponential growth in the coming quarters. In fact, its recent blowout Q1 shows that AMMO is beating expectations with plenty of room to spare.
An update in late May made several things clear, but one in particular- AMMO is in hyper-growth mode. The company blew past its FY2022 Q1 initial guidance by posting $41 million in quarterly revenues, representing a 51% increase from its original $27 million projection. While that growth was impressive on its own, that surge also led to AMMO announcing its first profitable quarter in history. Better still, that milestone was capped off with bullish guidance from the company suggesting that growth will continue through its fiscal year.
In fact, they are proving just that. Already, AMMO is expected to deliver over 750 million rounds per year to a diverse list of customers. Better still, following its GunBroker.com acquisition, AMMO has products placed in more than 1600 retail locations. Even better, with its recently upgraded manufacturing facility, AMMO expects that it can triple production this fiscal year. And from a sales perspective, AMMO can get those products to market through a robust multi-channel distribution network that meets demand from law enforcement, military, and sports markets.
Combined, those markets present substantial revenue-generating opportunities. In fact, last year’s numbers put the combined market opportunity at more than $32 billion. However, with a recent surge in gun permit applications and background checks through June, analysts expect the sector to see a rise in demand during the remainder of the calendar year. The latest numbers show new year-to-date applications for gun licenses are at least 20% higher. Growth in that part of the market is leading to sold-out store shelves and order backlogs for AMMO.
In fact, AMMO said that its ammunition backlog increased by 125% in less than six months. Still, AMMO isn’t slowing down. Instead, they are taking on a sales strategy to maximize the potential of its strengthened facility. Earlier this year, AMMO opened a call center that connected them with more than 67,000 dealers, added over 1,000 new customers, and processed over $80 million in booked orders. Better still, its focus on serving its customers direct has also earned its positions in over 1,600 retail locations, including DICK’S Sporting Goods (NYSE: DKS) and Cascade Farm and Outdoor.
And the better news is that AMMO is still in its early innings for growth.
A Surge In Value
Indeed, AMMO is earning every bit of its top-5 position in the sector. And even during one of the most unprecedented economic slowdowns in a generation, AMMO proved it could grow.
Showing resiliency against the extraordinary pandemic-related headwinds, AMMO expanded its product portfolio, increased production capacity three-fold, and completed its massive $240 million acquisition of GunBroker.com. Thus, while some competitors are reeling from a disastrous last eighteen months, AMMO is positioned to benefit from a considerable tailwind of revenue-generating momentum heading into the back half of 2021. Moreover, as global market chains return toward normalcy, coupled with a surge in gun permit applications, revenues may grow considerably faster than even company guidance suggests.
In fact, with AMMO benefiting from a full year of GunBroker.com revenues in FY 2022, investors would be wise to expect a record-setting year. Thus, modeling for sales in the $190 million to $210 million range could yield a share price that is substantially higher than current levels. And despite the stock trading higher by 172% YTD, revenue multiples should justify the expected increase.
And don’t forget, AMMO’s growth is supported by more than revenues. They have market-leading brands, a management team that delivers results, and are in a sector experiencing massive growth from public and private demand. Thus, while FY2021 is expected to post exceptional gains, expect the combination of milestones reached to help accelerate the pace of growth in FY2022. In fact, a seven-figure high-margin international ammunition transaction announced last month is already creating additional revenue-generating momentum.
To use an industry phrase…AMMO Inc. is firing on all cylinders. And better still, it is positioned to capitalize on massive market opportunities this year through a platform and asset portfolio designed to deliver value. Thus, while its 31% share price surge in June and 172% YTD gain is impressive, current prices, on a peer multiples basis, still significantly undervalue its revenues and assets.
But, no one ever said that markets price all stocks fairly. In fact, there are arguments every day about hundreds of valuations, with each side claiming they’re right. Still, what these disconnects do well is to expose value opportunities. And in the case of AMMO, Inc., the current valuation disconnect may be presenting a massive one.
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