AMMO, Inc.'s (NasdaqGS: POWW) 97% increase in its share price since the start of the year may be a prelude for better things to come. After all, AMMO blew through revenue estimates, streamlined its operational structure to maximize revenues, and closed on a transformative $240 million acquisition of GunBroker.com. The better news is that as good as things are already, AMMO management is decidedly bullish on its future. And, investors note that while being the fifth largest ammunition and munitions supplier is an admirable achievement, there is ample room for growth. Both may be right.
Indeed, AMMO, Inc. looks to be in its best operating position in history. Helping to get there was its recent acquisition of GunBroker.com, a deal that quickly placed AMMO in the top echelon of ammunition and munitions suppliers worldwide. Better still, beyond the combined revenue-generating strengths of GunBroker.com and AMMO, Inc. on the business side, from an investor's perspective, the combined company is about to get interest from the roughly 60 million GunBroker.com members who aren't already AMMO stockholders. That demand, of course, could drive share prices substantially higher, especially with AMMO having a relatively small public float. Moreover, with AMMO announcing last Monday its near-certain inclusion in the Russell 2000 and Microcap index, momentum to the upside could start to build sooner rather than later.
In fact, even without the late June Russell catalyst, current prices present a compelling value opportunity. Here's why:
Revenues Surge, Acquisition Will Add Even More
Although the GunBroker.com acquisition provided an exclamation point to a tremendous quarter of business, AMMO was already on a roll. In fact, AMMO's impressive performance last quarter was best demonstrated by two things. First, the company blew its own estimates out of the water by posting $41 million in quarterly revenues - a 51% increase from its $27 million projection. The second, and indeed a significant milestone reached, is the company's announcement of its first profitable quarter in history. Better still, guidance remains bullish. And with revenues now coming from GunBroker.com, growth could be exponential.
Investors are taking notice. In fact, its confluence of news sent shares higher by more than 8% in May, despite the weakness in the broader micro-cap market. Better still, the company has held its gains through the month-long bearish conditions in the NASDAQ markets - while the index lost 3%, AMMO is building to its 97% YTD gains.
And the expectations are for AMMO, with GunBroker.com, to capitalize on new and massive opportunities in the munitions sector. Thus, its 97% YTD gain could be the starting point for the future.
Accretive Development Strategies Bring Great Returns
Keep in mind, too, that although AMMO stock trades as a micro-cap, its reputation as a premier American ammunition and components manufacturer is never questioned. In fact, since 1999, the company's unwavering commitment to excellence and its eagerness to capitalize upon business expansion opportunities has helped them emerge as a leader in the industry.
Moreover, despite an unprecedented 18-month pandemic-related slowdown, AMMO expanded its ammunition portfolio, increased production capacity through facility upgrades, and took advantage of strategic acquisition opportunities when presented. Heading into the back half of 2021, those moves position AMMO exceptionally well to capitalize on the ammunition industry's surge in product demand. In fact, beyond current orders, AMMO is also serving a backlog of orders that will combine to fuel revenue growth this quarter. By the way, those new to AMMO should know that they generate impressive revenues already.
Even before the GunBroker.com acquisition, AMMO expected to generate roughly $190 million in revenues for its FY2021. However, with the GunBroker.com deal now complete, the company is probably no longer thinking in terms of "substantial" growth, but rather "exponential" growth. In fact, it's expected that post-acquisition revenues could reach as high as $210 million by the end of the year. Next year, with a 12-month contribution, expect much more.
That's because AMMO now owns the rights to the world's largest online auction marketplace dedicated to firearms, hunting, and related products. And that asset immediately adds enormous value to the company's portfolio and creates opportunities to target new and diversified opportunities. Better still, as a result of the acquisition, AMMO gained access to a platform that has 60 million registered users. And marketing directly to that group could drive revenues exponentially higher.
Better still, AMMO will be leveraging an online presence that is substantially improved.
Immediate Physical And Online Presence In 1600+ Locations
Although AMMO already supplies over 750 million rounds per year, its acquisition, enhanced online presence, and facility upgrades set the stage for considerable near-term growth. In fact, with upgraded manufacturing capabilities and a robust multi-channel distribution network, AMMO is better prepared than ever to handle the intense demand from various industries, including law enforcement, military, and sports markets.
As it stands, AMMO is targeting combined global market opportunities exceeding $32 billion, which includes the $13.9 billion commercial and retail markets and $18.5 billion military and law enforcement sector. An interesting development to keep in mind, however, is that firearm background checks increased by 61% and 78% YoY in 2020 and 2021, resulting in a near 20% increase in gun sales that looks to be trending even higher.
In fact, analysts expect an even more significant surge in buying as shortages in weapons and ammunition feed the demand caused by an uncertain political environment regarding potential legislative actions. The pre-Biden buying spree may be a precursor of more to come, especially with the media pushing narratives that could sway public opinion regarding gun ownership. For AMMO, though, wherever the demand originates, it's great for business. And demand is quite strong already.
AMMO stated that its ammunition backlog increased by 125% in less than six months, leading them to open 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, the company's strategy of serving its customers directly has also earned its positions in over 1,600 retail locations, including Rural King, DICK'S Sporting Goods (NYSE: DKS), and Cascade Farm and Outdoor.
Thus, it's comforting for investors to know that AMMO can meet surging demand from its combined manufacturing space of more than 160,000 square feet. In fact, the company expects that its facility improvements can triple production output. Even better, from an operations perspective, those improvements are expected to generate savings of up to $1 million through improved efficiency and cost-cutting measures.
Keep in mind, those savings come on top of already strong margins. There's more to like.
A Bullish Back Half Of 2021
The excellent news for shareholders is that the growth at AMMO comes from tangible assets and organic growth. And more importantly, their contribution to a record-setting performance is not expected to slow down anytime soon.
In fact, as noted, AMMO is arguably in its best operating position ever – a fact that is beginning to generate considerable investor attention. And with its inclusion into the Russell indexes later this month combined with an expected adjusted EBITDA to reach $65 million by the end of this year, the value proposition is more compelling than ever.
Furthermore, while AMMO's expected 206% increase in YoY revenues is already impressive, another deal finalized last month could make that estimate conservative. In May, the company announced a seven-figure high-margin international ammunition transaction. That agreement came after the already bullish guidance and positions AMMO to beat expectations once again. Not to mention – all of these incoming revenues are bolstered by an exceptionally strong 50% or more gross profit margin.
Even better, AMMO believes its international business is positioned for considerable expansion, noting that as the global economy continues to recover from COVID-related slowdowns, it's $30 million in expected revenues from international operations may prove conservative. And with analysts expecting a V-shaped recovery in demand for ammunition, AMMO may be right
Undoubtedly, AMMO is an example of a company that expertly navigated pandemic-related challenges. As a result, AMMO is prepared to meet substantial global demand and have its revenues be more impactful than ever from an operational perspective.
Thus, with AMMO firing on all cylinders, current prices fail to factor in its intrinsic value and also neglect the inherent value from its $240 million acquisition. Thus, the momentary lapse of reason does expose a potentially massive value proposition. And if that's the case, it's good news for investors.
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