Markets are far from perfect. In fact, equities prices more often miss the mark compared to when they get it right. That's why the word "correction" is so often used. But imperfect markets aren't all bad news; they invariably create investment opportunities. And those investors taking advantage of one apparent to AMMO, Inc. (NASDAQ: POWW, $POWW) could potentially realize substantial near and long-term returns from a company checking the right boxes at the right time.
At roughly $3.00, POWW stock is exposing an opportunity that could be too good to ignore. In fact, unlike many companies hoping to grow despite challenging markets, POWW already is. And the better news is that after completing a tremendous amount of operational and logistical groundwork, that trend is expected to continue. Actually, that's happening.
More robust fundamentals and infrastructure contributed to Q1 revenues of over $60 million. But, while impressive, those revenues could be just the start of a more bullish trend. AMMO expects revenues in 2023 to eclipse $300 million and score EBIDTA between $82 million to $85 million. On an Adjusted EBIDTA basis, results are expected to be even better, with AMMO guiding to reach between $108 million to $111 million. Indeed, not many $3 stocks boast anything close to that type of financial performance.
Still, appreciable revenues and earnings growth guidance is just one factor in appraising POWW. While those factors certainly help separate itself from the small-cap pack on many levels, the more excellent news is that initiatives are underway to unlock the intrinsic value and inherent potential of an AMMO business in hypergrowth. Thus, the current share price may do more than miss an appropriate mark; it may present an attractive and timely proposition.
Creating Value And Tapping Into Existing
Part of that proposition is inherent to a Board committed to enhancing shareholder value by maximizing the sum of AMMOs parts. In other words, the pieces to grow bigger faster are already in place. In fact, AMMO's assets, brand potential, and market positioning in addressable markets already establish the company as an ammunition sector leader. That's not all. While its brick-and-mortar presence is growing, its position can be strengthened further by leveraging its diversified and growing product arsenal to become a more formidable e-commerce provider.
In addition, activist investors committed to building shareholder value could help fuel growth. Frankly, when two sides put muscle toward a common goal of maximizing value, there are seldom any losers. That outcome usually results from adding fresh perspectives to the boardroom and leveraging management expertise, new and old, to capitalize on focused opportunities.
Focused on opportunities could lead to scoring new milestones. And POWW could reach those sooner than later by being well-positioned to optimize its balance sheet strength to obtain affordable and non-dilutive financing to advance an acquisition strategy intending to bring EBITDA-accretive acquisitions under the POWW umbrella. Speculation is that deals may already be in the crosshairs to acquire companies that expand POWW's presence in the e-commerce space.
Keep in mind that POWW isn't starting from scratch. They are ideally positioned to maximize the benefit of millions of existing customer relationships and users already using its GunBroker.com asset. Doing so could add to a considerable revenue-generating tailwind and expand interests in new B2C categories, adding to sales generated from military and law enforcement contracts and further developing adjacent markets, including sporting goods, apparel, and collectibles.
The better news- combining market potential, reaching $1 billion in annual sales over the next few years is a target POWW believes is in reach. And more excellent, maximizing double-digit EBITDA margins would help those revenues fall faster to the bottom line.
Timely To Its Ammunition Market Opportunities
The current share price may very well be an exaggerated lagging indicator contrary to where POWW is heading. In fact, a change in fortune could come quickly as institutional investors rotate into aerospace and defense companies. Those doing their due diligence know that POWW is one of the few, if only, sector companies adding significant production capacity over the past twelve months. That added capacity is expected to result in marketing high-margin products and earning new business from a record amount of new shooters. Technological upgrades are also likely to accelerate e-commerce growth, adding to the list of actionable shots on goal intending to generate substantial near and long-term growth.
There's more to like. POWW guided investors to expect new military contracts, with several in development. Also in play are opportunities to export ammunition to a global market, a revenue-generating opportunity strengthened by embargoes on Russian arms sales and sanctions against those still purchasing them. That's still not all supporting investment considerations.
Peer valuations for sales in action and outdoor sports markets can be at least 8X sales and as high as 15X for those earned through e-commerce. Those deserved multiples are lacking from POWW's current share price. Moreover, with marketplace revenue growth steepening, it becomes increasingly difficult to ignore the valuation disconnect as the number of contract bids, items sold, and average ticket amounts increase. Likely, many investors won't.
In fact, after completing construction at its state-of-the-art Wisconsin plant, investors would be wise to pay attention. The added capacity is already driving growth.
Expanding An Already Impressive Presence
Last month, POWW announced the roll-out of its full portfolio of loaded ammunition, including its STREAK™ Visual Ammunition, brass casings, and munition components. Those products are reaching shelves of an additional 440 retail stores since the start of its fiscal year, including those of Turner's Outdoorsman, and benefiting further from five new distributor partners. Those placements serve increasing demand across the commercial market and, better still, expand AMMOs distribution footprint throughout the U.S. The company guided investors to expect the placement and sales momentum to continue in 2023.
That's likely. POWW celebrated the grand opening of its new 185,000-square-foot world-class ammunition manufacturing facility in Manitowoc, WI, on September 22nd. That milestone does more than expand its manufacturing footprint; it expedites continued growth in the ammunition and components manufacturing side of its business. By no small measures, either.
POWW noted that the 185,000-square-foot manufacturing plant integrates state-of-the-art capabilities, allowing them to significantly expand production capacity to meet the demand for its commercial, military, and law enforcement products domestically and overseas. More than 400 people are expected to contribute to meeting increasing market demand, leveraging the added capacity capable of tripling current manufacturing output. Hence, growing into that $310 million guidance could happen sooner than later.
Taking Advantage Of A Valuation Disconnect
The bottom line: the sum of AMMOs parts exposes a value opportunity ripe for consideration. And as several proxy matters make their way to a vote, the undisputed and ultimate goal of the company, its Directors, and activist investors is to unlock the value inherent to a fast-growing, innovative company. That includes maximizing the tremendous sales potential from developing efficient online channels, growing military and law enforcement contracts, and driving sales higher from its current ammunition and munition components business, including its well-established STREAK™, Signature™, Blackline™, /stelTH/™, Blueline™, AMMO Brass™, and Hunt Ammunition™ brands.
Thus, current prices look more than attractive to those investing for the long haul; they are compelling. Yes, markets can be imperfect. But, at the end of the day, what will never change is that fundamentals, earnings growth, pro-active management, and selling products that markets demand will ultimately lead to a break from the bearish grip of herd mentality investors.
For POWW bulls and those considering, that can't happen soon enough. In the meantime, taking advantage of a window of opportunity may be a timely consideration. Remember, with AMMO, Inc. having plenty of firepower to support much higher prices and more record-setting earnings likely in the queue, that window could close faster than many think.
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