AMMO Inc. (NasdaqGS: POWW) shares continue to defy gravity and are higher by 14% in June, ahead of its Russell 2000 and Microcap index inclusions this week. And while its addition to the indexes is indeed a milestone reached, the company's confirmed guidance for a 400% increase in comparative quarterly revenues also adds to the bullish sentiment. Better still, beyond the expected boost to the $4.8 million in quarterly revenue, AMMO reiterated its expectation to deliver $62 million in revenues in FY2021, a roughly 319% increase over the $14.8 million posted during its past fiscal year ending June 30th. Thus, this rally should stay intact.
Notably, shares have not only been strong in June. Year-to-date, the stock is higher by 138% as investors bid up shares following its transformational acquisition of GunBroker.com. Adding more firepower to those gains, a recent Fintel report showed a substantial increase in institutional ownership, with 91 institutions combining with insiders to now own roughly 51% of the shares outstanding. The better news there, however, is that with the Russell inclusions expected at the end of this week, it's likely that those counts will increase, especially with professionally managed index funds taking positions in the stock as well.
And despite several of the most prominent Wall Street institutional names already owning shares, including Hood River Capital Management LLC, Vanguard Group Inc, BlackRock Inc., and Susquehanna International Group, Llp., its shares being added to the two different Russell indexes should create an even bigger list of top-tier owners. Keep in mind, interest comes from managed indexes well outside of the Russell family. And while some mimic-minded indexes often try to find suitable substitutions to model certain stocks, not having AMMO stock in the portfolio could shortchange investors. Thus, with few, if any, stocks able to effectively model AMMO's growth, expect the company stock to be its own representative. And as traders know, buy-side volume generally leads to price appreciation.
Still, while the Russell inclusions add a definite spark of interest, a convergence of other positive events makes AMMO stock a compelling investment opportunity. But, the value in that opportunity may tighten quickly. Here's why:
A Convergence Of Positive Events
Indeed, the convergence of positive events has generated decidedly bullish sentiment. And to match investor sentiment, AMMO is doing its part to put the company in its best operating position ever. Indeed, its $240 acquisition of GunBroker.com is a transformative acquisition that adds immediate revenue-generating firepower to the company. And more than adding substantial revenues, 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, momentum is in place from its blowout Q1 report that exceeded estimates with plenty of room to spare.
An update in late May exposed that AMMO is indeed 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.
Thus, with AMMO exuding its own level of confidence combined with that of retail and institutional investors, the rally for AMMO may be in the early innings. In fact, by being well-capitalized in a sector that may see some consolidation coming out of the COVID-19 pandemic, AMMO is undoubtedly well-positioned to capitalize on additional value-creating opportunities later this year.
After all, very few investors argue that AMMO, Inc. is content at being the fifth largest munitions supplier in the US. Instead, the positions taken by investors suggest that the company's ambitions are far from being satisfied.
Video Link: https://www.youtube.com/embed/GPileCz5ZiI
GunBroker.com Creates Massive Online Presence
Keep in mind that while AMMO is penetrating new markets, they are certainly not an "emerging" munitions supplier in the traditional sense. In fact, they already have a substantial market presence and supply over 750 million rounds per year to a diverse list of customers. Better still, after the GunBroker.com acquisition, they have a placement in more than 1600 retail locations, and benefit from recent facility upgrades can triple current output. Notably, that increase in manufacturing capability is already supported by a robust multi-channel distribution network that can manage demand from law enforcement, military, and sports markets.
And those markets combine to deliver 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, analysts expect 2021 numbers to be substantially higher. Year-to-date, new applications for gun licenses are at least 20% higher, and sales of ammunition to support that rise lead to sold-out store shelves and order backlogs for AMMO.
In fact, AMMO noted that its ammunition backlog increased by 125% in less than six months. Still, AMMO isn't slowing down. Instead, they 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 shift toward 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.
From an investment and company growth perspective, the best part is that AMMO is positioned to grow further, faster. Its enhanced 160,000 square foot production facility can not only meet surging demand already on the books but provides the resources to meet future demand increases.
Thus, AMMO is an accurate depiction of what a growth stock should be. Better still, unlike most capital-intensive companies, with their manufacturing facility already enhanced, they are ideally positioned to maximize their opportunities without much more additional capital investment. And for investors trading for both near and long-term value appreciation, that's an important consideration.
Value Beyond its 138% YTD Gains
Indeed, AMMO has grown into an impressive company. In fact, since 1999, their commitment to excellence and willingness to capitalize upon strategic and accretive opportunities helped to transform the company into one of the top five munitions suppliers in the world. 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 may be playing catch-up, AMMO has positioned itself to benefit from a considerable tailwind of revenue-generating momentum heading into the back half of 2021. And with global markets returning to a more normalized pace of commerce, 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, expecting anything less than a record-setting year might be a far too conservative forecast.
Targeting A Massive Year Ahead
Even with the stock up triple-digit-percentages YTD, the best news for investors is that AMMO has positioned itself for revenue growth to continue its trend higher. Better yet, meaningfully higher.
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 that growth to ramp higher in FY2022.
In fact, a seven-figure high-margin international ammunition transaction announced last month is already creating additional revenue-generating momentum. Moreover, that deal does more than accelerating sales growth; it also paves a more seamless route for further international business expansion. Thus, AMMO's guidance for $30 million in revenues from global operations may prove conservative. Of course, future updates will allow investors to keep track on that front.
The bottom line is simple- AMMO Inc. is firing on all cylinders. And its current price, despite the 14% June surge and 138% YTD gain, respectively, may still significantly undervalue its revenues and assets.
Still, as noted, that's not always bad since those market disconnects also expose opportunities. And at AMMO's current share price, a massive one could be front and center.
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