Some of the most outstanding investment opportunities come from discovering companies whose share price simply ignores the obvious. More specifically, when revenues, new contracts, and massive global opportunities are at best-ever levels, and the stock doesn't follow, a value proposition is born. AMMO, Inc. (NASDAQ: POWW) is a perfect example. Frankly, POWW is more than an example; it's a compelling investment opportunity.
And the better news for investors that have more than a thirty-minute investment horizon is that weak broader markets are making the POWW investment consideration too big to ignore. In fact, the revenue-generating momentum at POWW's back not only delivered extraordinary revenue growth in its FY Q1 and Q2, but it also gained strength in FYQ3 2022, with POWW posting a massive quarter that included a 289% increase over last year's period sending Q3 revenues to $64.7 million.
That's not all. POWW scored EPS of $0.07 compared to a loss of ($.04) last year and posted a more impressive Adjusted EPS of $0.14 compared to just $0.02 in the comparable period. And don't think the excellent news stopped there. Along with reporting stellar across the board performance, AMMO management raised the stakes by offering revenue guidance to meet at least $250 million by the end of FY2022. By the way, that's only about a month away, with POWW's fiscal year ending on March 31st.
A Lot Of Momentum At AMMO, Inc.'s Back
There's still more to like. Staying focused on the earnings, its $64.7 million in revenues was met with robust margins that generated an increase in gross profit of 14.7% to 34.8% as well. Furthermore, marketplace revenue was $17.6 million, and net income was $9.1 million compared to a net loss of $1.9 million in the comparative period. Thus, from any metric, POWW is performing at an exceptional level.
Still not convinced? Then consider the fact that its earnings report showed a whopping 752% increase in Adjusted EBITDA, reaching $20.1 million versus $2.4 million just one year prior. Oh, and the POWW balance sheet is impressive, too. It's so strong that the company not only paid a hefty dividend to owners of its Preferred shares but also announced a $30 million share repurchase program intending to take many of its undervalued shares off the market.
And best of all, POWW is locked and loaded for what could be its best year ever. In fact, global unrest, increasing military budgets, and political rhetoric create a perfect storm of revenue-generating opportunities as the company enters its new fiscal year in April.
Investors still short the stock may want to reconsider their position. Moreover, they should do so quickly.
Earning Report Supports Bullish Expectations
Why? Well, if its latest earnings update wasn't enough to convince those on the sidelines, perhaps knowing that having a backlog of $185 million at the end of the quarter will. That's about 75% of the total revenues expected this year. Keep in mind that's the backlog. New contracts, existing contracts, and an increase in its revenues from its Gunbroker.com acquisition should combine to make FY2023 the most lucrative period in its history.
And don't think AMMO management isn't aware of its success. Commentary suggests that they have every intention of bringing the share price back to all-time highs and beyond, and long-term investors know that when AMMO sets a goal, they have a history of meeting it. Actually, they habitually beat even lofty expectations.
For historical reference, the company set a quarterly record in FYQ2 when their revenue and Adjusted EBITDA significantly surpassed published guidance. In addition, FYQ2 showed ammunition revenue increasing 360%, proving that AMMO is more than in the right market at the right time; they are capitalizing on diversified market opportunities that each have billion-dollar revenue-generating potential.
In fact, success in that respect is shown by a substantial increase in marketplace revenue, being supported by the rise in the number of bids, products sold, and average ticket amount from its extensive client list. The better news is that the trend is AMMO's friend, with more increases in segmented revenue streams expected from a considerable increase in the number of customers who have signed up for its new loyalty program.
Here's more great news: AMMO is enjoying impressive margin expansion from growth in its marketplace segment, as well as scale-related efficiencies relating to its core ammunition business. Adding more bullish fuel to the AMMO investment proposition came from updates on its newest contracts. A particular one catching attention was a new U.S. military contract last September. Moreover, an update detailing how its state-of-the-art Wisconsin plant can add a multiple to current production levels shouldn't go unnoticed, either. That's planned to open in mid-2022, adding a potential tripling of production capacity to some of its production runs.
What does it all mean? Simply put- growth across the board. And that translates to AMMO being in its best position ever to score potentially exponential growth in its current year.
Growing Revenues, Falling Expenses
Here's another consideration. Its latest earnings report is no outlier; AMMO's business performance has seen a steady rise throughout the fiscal year. In Q2, its sales resulted in net revenues of $61.0 million, up 408% over the same quarter from a year prior. Part of this boost came from sustained growth in its ammunitions business and additional revenue gains from its transformational acquisition of GunBroker.com earlier in 2021.
Ammunition sales totaled $40.2 million in the second quarter of 2021, up 360% from $8.7 million the previous year. The GunBroker.com acquisition contributed to its $16.8 million in marketplace revenue, with no comparable year-ago period. Also, the company's second-quarter gross profit was $26.2 million, up from $1.3 million the year before, thanks to strong growth in its ammunition segment and additional income from its marketplace division, which generates much higher margins.
In fact, due to the impact of AMMO's higher-margin marketplace income, their gross profit margin jumped to 43.0% in the second quarter, compared to 10.7% in the same quarter of the previous year. The second-quarter gross margin increased by 30 basis points on a sequential basis, owing to AMMO's diversified and expanding mix of revenue streams.
So, while FYQ2 was excellent, its FYQ3 was even better. More importantly, there's a tailwind of revenue-generating momentum heading into its last quarter.
Market Oversight Brings Great Opportunity
Hence, lower prices may be short-lived. Yes, market conditions are at their lows, but with AMMO operating from a position of strength, it may be a shining gem in a sector of stocks filled with uncertainty. Indeed, shares look appreciably undervalued at current levels. But don't chalk that up to the operational performance, and instead, put it on swing traders and short-sellers timing the market for quick returns.
Still, while short-term traders may be having their day, fundamentals, earnings growth, being in the right markets and having top management that knows how to exploit its opportunities will take center stage. And with AMMO checking all those boxes, expect a more appropriate valuation to come sooner than later.
Keep in mind, too. While AMMO's FY2022 has been excellent, they are on record expecting to generate $400 million in revenues within two years. Thus, while reclaiming its 52-week high of $10.37 may be in its crosshairs, it's more likely just a rest stop to more appreciable gains.
Hence, the takeaway is quite simple: AMMO's share price may be lower in sympathy with broader market weakness, but don't consider that a result of poor operating performance. On the contrary, AMMO is impressively hitting its revenue-generating stride and is better positioned than ever to deliver enviable increases to its financials across the board. Better still, its triple-digit percentage growth may be more than giving a historical perspective; it may be a precursor of even better things to come.
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