AMMO Inc. (NASDAQ: POWW, $POWW) shares may be trading lower, but fair to them, so are about 90% of other stocks. And that's across the board. In other words, few stocks, large are small, are getting spared from the over trillion dollars lost in combined equity values over the last month. And despite broader markets sporadic some signs of relief, gains can't be sustained beyond a few days. Still, savvy traders know that volatile and weak markets do more than create opportunities; they expose them. Investors don't need to look too closely to see that POWW is one of them. In fact, revenue growth, increasing market share, facility expansion, and even activist investors make the AMMO, Inc. value proposition too good to ignore.
It's a similar story to one told over and over in the investment world; equity prices are an imperfect assessment of a company's fundamentals. That's the case at POWW. The company posted Q1 revenues of over $60 million, strengthened margins, and inked deals that could generate significant near and long-term growth. Actually, that's expected. Along with earnings, POWW management guided for 2023 revenues to eclipse $300 million and, better still, score EBIDTA between $82 million to $85 million. On an Adjusted EBIDTA basis, results are forecasted to be even better, with AMMO guiding to reach between $108 million to $111 million. Multiple on those numbers alone can justify a substantially higher share price.
But there's much more to the POWW proposition. And frankly, any number of things can help fuel a rally to score more appropriate valuations.
A Battle To Build Value
One could be value unlocked through activist investors, which are campaigning for POWW to make operational changes that, in their view, would unleash significant intrinsic value. That's potentially excellent news for investors. No matter which side of the case investors support, the bottom line is that investors are presented with a win-win proposition. Both sides of the proxy want the same thing- to increase shareholder value. Thus, while there may be pressure on the stock from general market weakness or investors getting shaky, the ultimate direction of POWW should inspire interest from current, new, and considering investors. Few argue that POWW's path of least resistance is higher. Rightly so.
The company is targeting a market where the public sector and private demand are rising. Also, geopolitical pressures are increasing (to the benefit of U.S. manufacturers), and the usual domestic headlines ahead of elections are creating another round of surging demand for everything from guns to the bullets used in them. Shortages of products on shelves continue across the nation. With sanctions on Russian ammunition, a reprieve from that situation is unlikely. And that's really the underlying premise behind investing in POWW at these levels. Governments, public agencies, and millions of consumers want what they sell. Moreover, it's an accelerating trend.
And while POWW is young in the industry, they certainly aren't the smallest. Moreover, a large part of its mission is to get bigger, which they are doing by acquiring excellent companies, taking advantage of manufacturing efficiencies, and tapping into billion-dollar revenue-generating opportunities in both public and private sector markets.
Creating Value And Tapping Into Existing
Hence, for those looking to or already invested, it's hard to fathom why shares are declining despite executing so well on an operational front. The answer- markets are imperfect at best, and with indexes and activist motivations in play, value can be suppressed. Not maliciously, mind you, just as a matter of supply, demand, and sentiment dynamics. Still, at the end of the day, fundamentals eventually rule the trading day. With POWW's stronger than ever and a Board committed to maximizing value, POWW stock could move appreciably higher in the coming days, weeks, and quarters.
That's not an overly bullish commentary, either. AMMO Inc. has the pieces in place to grow significantly larger. In fact, AMMO's assets, brand potential, and market positioning in addressable markets already establish the company as a formidable ammunition supplier. It's doing well on the brick-and-mortar side, but its push to further develop and monetize its e-commerce business could help them shift into hyper-speed in a hurry.
Not only from what's on hand. POWW likely isn't done acquiring well-positioned accretive companies to capitalize on additional business ambitions. And by optimizing its balance sheet strength, POWW is well-positioned to make deals in non-dilutive ways. Seeking EBITDA-accretive acquisitions to put under its AMMO, Inc. umbrella is likely in the crosshairs, and with traditional financing an option, shareholder value can be added more quickly by keeping treasury shares in the warchest. Speculation is that deals may already be in play, especially those that help capitalize on additional e-commerce market opportunities.
Remember, they have the expertise to penetrate the online space and can expedite doing so by maximizing the benefit of having millions of existing customer relationships and users already using its GunBroker.com asset. Further, taking advantage of the right deals at the right time could add to an already considerable revenue-generating tailwind, expand interests in new B2C categories, add sales from military and law enforcement contracts, and further develop adjacent markets, including sporting goods, apparel, and collectibles.
Commentary from POWW management during its earnings call was undoubtedly bullish. Some are on record saying they believe the combined market potential from its expanding business reach could generate upwards of a billion dollars in annual sales over the next few years. And by maximizing double-digit EBITDA margins, those revenues could fall faster to the bottom line. Adding significant production capacity helps the cause.
Tripling Production Capacity, Best-In-Class Ammo
POWW did. They completed a significant facility upgrade expected to contribute toward a tripling of production for high-margin products to meet growing demand from a record number of new shooters. It should also help reduce substantial back-orders and fill new military contracts, with several already 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. There's more to justify investment considerations.
POWW recently announced the roll-out of its full portfolio of loaded ammunition, including its STREAK™ Visual Ammunition, brass casings, and munition components. Those products have reached shelves of at least 440 retail stores since the start of its fiscal year, including prominent ones at Turner's Outdoorsman and Dick's Sporting Goods (NYSE: DKS). That's not all. POWW expects to benefit significantly from five new distributor partners to capitalize on segmented market demand across the commercial markets and expand its distribution footprint throughout the U.S. The company guided investors to expect sales momentum to accelerate from those deals in 2023.
That's likely. Alluded to above, POWW celebrated the grand opening of its new 185,000-square-foot world-class ammunition manufacturing facility in Manitowoc, WI, on September 22nd. The massive location integrates state-of-the-art capabilities, allowing POWW to significantly expand its 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. Those questioning how POWW could reach those billion in sales have at least part of their answer. But with more upgrades expected, a more complete one may be announced soon.
A Valuation Disconnect Too Good To Ignore
Indeed, there's much to like about POWW and plenty to support investment consideration. Whether investing for the near, mid, or long-term, POWW stock at current prices could be considered a ground floor opportunity. That's an assumption made knowing that as the company matures and puts its most efficient procedures in place, it can capitalize on and maximize the enormous sales potential from online channels, growing military and law enforcement contracts, and its current ammunition and munition components business, including its well-established STREAK™, Signature™, Blackline™, /stelTH/™, Blueline™, AMMO Brass™, and Hunt Ammunition™ brands.
In the meantime, taking advantage of an apparent valuation disconnect between assets, potential, and share price is a timely and actionable consideration. Remember, AMMO, Inc. isn't starting from zero. They are a significant revenue-generating company that is cutting costs and creating a manufacturing infrastructure that could turn this expected $300 million company in 2023 into a revenue generating juggernaut by 2024. Thus, it's appropriate to go beyond suggesting that AMMO, Inc. is more than in its best position ever to create enormous shareholder value; with more record-setting earnings likely in the queue, it's fair to include it may happen sooner than later.
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