Don't let the weakening in the share price of AMMO, Inc. (NasdaqGS: POWW) fool you. This company is locked and loaded to create massive shareholder value in the coming weeks and quarters. In fact, POWW has made at least two deals in May that may have put the company in the best operating position in its history. Best still, the momentum created through Q1 of this year is expected to accelerate.
Thus, this broad market pullback may be exposing a limited-time opportunity to purchase POWW shares at discounted prices. In fact, trading at a 65% discount from 52-week highs and with an expected $190 million in revenues this fiscal year, gains are likely to come sooner rather than later. Better still, those revenues are falling fast toward the bottom line, with POWW guiding for adjusted EBITDA to reach $65 million.
And as investors search for growth to limit downside risk in a volatile market, POWW's expected 206% increase in YoY revenues will undoubtedly attract substantial investor attention. Deservedly so, and here's why:
Deals Drive High-Margin Revenues
For starters, this premier American ammunition and munition components manufacturer recently announced a seven-figure international ammunition transaction that will hit the books this quarter. The best part of those revenues is that they come supported by a roughly 50% gross profit margin. That's not all.
AMMO further expects its international business will capitalize on additional emerging opportunities beyond the $30 million expected in its FY2022 revenues. Notably, they point to signs that global markets are normalizing from a massive COVID-related slowdown, making its bullish guidance potentially conservative. AMMO supported that premise, telling investors that calls, indications of interest, and purchase orders are ramping higher. Thus, while the $30 million in expected international business this year is impressive, having access to substantially more customers compared to last year positions AMMO to outperform expectations.
And if demand does spike, investors can be comforted by AMMO taking advantage of the global slowdown to enhance its facilities and substantially increase its production capacity. Those moves will allow the company to immediately capitalize on worldwide business opportunities stemming from more normalized business activity.
Keep in mind, too, AMMO is unique in that it targets a massive and diversified audience. Better still, with a robust IP portfolio, its competitive advantages and ability to meet surging demand will be protected from potential poachers. Moreover, with AMMO operating from a position of financial and product portfolio strength, expect them to not only meet demand but also grow their market share.
And with multiple target markets in play, that's the expectation.
Leveraging Broad Market Opportunities
In fact, its production of more than 750 million rounds per year targets diversified markets, with its multi-channel distribution capability providing scale to meet demands from military, law enforcement, sport, and self-defense markets. Those markets are dependable, consistent, and offer substantial contract opportunities to AMMO based on its innovative, high-performance ammunition portfolio. Even better, a recent acquisition enhances these opportunities.
In May, AMMO announced the closing of its acquisition of GunBroker.com. That deal could be a transformative transaction, and investors should be paying close attention to why. In fact, once the deal closed, management was able to speak more freely about its accretive contributions. And to investors listening, they heard great news...the acquisition put the company on track to deliver positive net income for the first time this fiscal year. If you weren't listening, now you know.
Better still, its integration into the AMMO family is happening quickly. Moreover, with the AMMO team accelerating efforts to meet increased demand for its ammunition and component products, the addition of a fully integrated GunBroker.com operation opens the door to new market opportunities by leveraging that platform to enhance product offerings.
What does that translate into? A likely increase in shareholder value. And with roughly 71 million shares outstanding, coupled with more than 18% of insider ownership, AMMO is well-positioned to deliver that goal.
There's still more to like.
Intrinsic Value Beyond Its Price
Although the turbulent markets might have brought some companies to more realistic valuations, it overshot on AMMO. There's simply too much regarding infrastructure, revenues, and growth to take its valuation lower in an indiscriminate fashion. However, as noted, the market selloff created a substantial opportunity to purchase POWW stock at what many call significantly undervalued levels.
In fact, at roughly $6.30 a share, AMMO is undervalued using several metrics. And after factoring in intrinsic assets like owning multiple production and distribution facilities, an expected $190 million in high margin revenues, and serving markets that will stay relevant for decades puts an exclamation point after any "revenue multiple" calculus. Even better, investors can look to strong industry tailwinds, multi-channel distribution networks, and vertically integrated business models to justify a higher valuation.
Moreover, in comparison to others in its sector, there is, well, no comparison.
Differentiation As An Asset
Comparing AMMO to others in the industry isn't fair to its competitors. There are simply too many differentiating features at AMMO to keep the analysis fair.
The biggest is in the product. AMMO offers patented, non-commodity products, compared to competitors primarily offering commoditized products built using inferior materials and processing. AMMO also markets branded and licensed products compared to a general SKU number listed by others. Also, from a value perspective, AMMO serves up premium arsenal and components that target young, active markets instead of relying on an older client base that is decreasing over time.
Keep in mind, too, AMMO is more than an ammunition and component company that sells millions of bullets to military, law enforcement, and self-defense markets. They also earn value from selling patented biodegradable hunting and sport shooting shells, have an extensive R&D program evaluating the manufacture of complimentary biodegradable pistols, offer small and large rifle ammunition, and hold a business presence in 20 countries outside of the US. They are also one of the few companies whose products have been tested and certified through TÜV AUSTRIA, a world leader in the certification of bioplastics.
Of course, what does this all mean? In short, substantial global billion-dollar market opportunities.
Substantial Addressable Markets
Indeed, a company can be great but not have a substantial market to serve. AMMO is excellent and has several. And each offers billion-dollar opportunities.
In the commercial and retail side of the equation, AMMO targets a massive $13.9 billion global market actively purchasing products. Adding in military and law enforcement puts an additional $18.5 billion into play. Combined, AMMO is reaching out to a $32.4 billion global market. And with firearm background checks increasing by 61% and 78% YoY in 2020 and January 2021, respectively, its use as a leading indicator for gun sales shows a bullish year ahead.
In fact, extensive media coverage suggests that demand is surging. Moreover, a report in Forbes noted that the Pre-Biden gun spree outstripped the ammunition supply for certain weapons. Consumers were met with empty shelves for even the small caliber ammunition. And according to reports, retailers and wholesalers are still needing supply.
Specific to AMMO, that run on supply is more compelling. Its ammunition backlog grew by 125% in less than six months into February of this year. That pushed AMMO to open a call center last year, which serviced more than 67,000 dealers and added more than 1,000 new customers that generated more than $80 million in booked orders.
Incidentally, those new customers represent positioning in 1,600 retail stores and a significant e-commerce presence from notable brands like Rural King, DICK'S Sporting Goods (NYSE: DKS), and Cascade Farm and Outdoor.
That growth will keep its more than 160,000 combined square feet of production space busy this year. In fact, its new $12 million state-of-the-art ammunition and brass case manufacturing plant is expected to help contribute toward a tripling of current output. Better still, these facility enhancements are expected to contribute up to $1 million through operational efficiencies and cost-cutting strategies.
The bottom line is clear - there's a lot to like about AMMO, Inc.
Finding Its Earned Value In 2021
Good companies don't stay down, and AMMO should serve as a great example. Surging revenues, operational efficiencies, new facilities that can triple production, and global markets returning to near normal can combine to generate a significant near-term catalyst for the company.
Further, they serve a red-hot ammunition sector showing no signs of slowing demand and are meeting that surge with best-in-class products and a balance sheet allowing them to keep pace with increasing demand.
Simply said, at current prices, AMMO, Inc. (POWW) is priced for near and long-term appreciation. And, with the company executing well to accelerate growth, expect the disconnect between price and value to close considerably once the markets strengthen.
Thus, this compelling opportunity should be in the crosshairs with investors ready to pull the investment trigger.
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