AMMO Inc. posted a massive FYQ1 quarterly beat this week. And it's not only the surge in revenues and record-setting adjusted EPS that's earning attention. Investors that listened to the earnings call heard another message as well- AMMO, Inc. (NASDAQ: POWW) is in hyper-growth mode.
And that's not just an impression felt; guidance buoyed that sentiment, with AMMO raising its FY2022 revenue estimates to $210 million, up from its prior estimate of $190 million. They also reiterated its raised guidance for FYQ2, expecting to post upwards of $51 million in sales for the current period. That's about 12% higher on a sequential basis from its $44.5 million announced on Monday.
Even better, company CEO Fred Wagenhals suggested that AMMO could reach near $400 million in sales over the next two years. While that is his opinion and not formal guidance, it means that optimism is the day's sentiment at AMMO.
Rightfully so. In its FYQ1 published Monday, the company pushed revenues higher to $44.5 million, increased EBITDA to $16.3 million compared to a loss of $0.3 million last year, and announced the integration of its transformative Gunbroker.com acquisition remains on pace to add even more revenues in the coming weeks. Better still, they posted a NET INCOME of $9.5 million that pounced its ($3.1 million) loss in the same period last year.
Adding more fuel to its bullish report, margins increased, customer count grew, and demand throughout its client base remained robust. Hence, it's fair to say that AMMO's sum of its parts adds up to create a compelling value proposition. Moreover, its stock could be especially attractive to investors liking triple-digit percentage growth throughout almost every financial metric.
And while all of the above presents a compelling thesis for investment consideration, the more excellent news is that the revenue-generating momentum is at AMMO's back. Its $238 million order backlog shows that's the case.
Exceeding Estimates With Powerful Guidance
Of course, it's always best to get information directly from the source. AMMO management delivered in that respect, quick to highlight solid first-quarter results that exceeded estimates for revenue and Adjusted EBITDA.
Moreover, they noted that core ammunition sales were up more than three-fold and had added over $12 million of high-margin marketplace revenue through its Gunbroker.com acquisition, as well as working on several major initiatives to accelerate growth across its marketplace platform.
Better still, to meet the continued surge in demand, AMMO is building a new, larger, and more efficient manufacturing facility that is expected to be more than ample to support its near-term strategies and opportunities. The company expects the facility to support a 4X increase in production levels to meet surging demand.
That facility is timely. As noted, AMMO already has a backlog of $238 million. And they said that as fast as they fill orders, new ones replace the old. Thus, visibility is intact as well, which is often an investor's most trusted ally.
Markets Need Products
Moreover, from a more macro market view, the ammunition shortages across the United States indicate that AMMO is operating in the right sector at the right time. And with new gun permits being issued at near-unprecedented levels, the expectation is that revenue-generating opportunities will stretch into the foreseeable future. As a result, beyond its expected $210 million in sales this fiscal year, there's plenty of revenue-generating shots on goal left to reach. The good news is that they are doing that through a well-orchestrated action plan.
In fact, this Florida-based company, which started from an idea to create a "small ammunition manufacturing company," has grown into a top-five global ammunition supplier. Its client reach now extends to law enforcement, defense, sports enthusiasts, and retail consumer markets. Put simply, AMMO Inc. has come a long way in a short time. Even better, the trajectory calls for accelerating growth in the coming quarters.
And according to other conference-call commentaries, AMMO said it is working to close potentially significant deals in the next 30 days. Expectations suggest that AMMO might be close to securing a major deal in the military space. Of course, for now, that's a speculative "reading between the lines" interpretation of comments made. Still, it's a logical one to suppose.
If they close a deal there, it adds to the demand generated from its retail presence in more than 1600 direct-to-consumer locations. Further, its integration of Gunbroker.com and targeting its roughly six million active users positions AMMO for a transformational surge in revenues.
Why? Because AMMO noted that despite the massive active user base at Gunbroker, ammunition sales accounted for only 3% of its revenues last year. Hence, an enormous opportunity is in play from that target market alone. And tapping into that group could be transformative to the revenue stream.
Look at it this way. If AMMO successfully reached only 15% of Gunbroker.com's active user base to generate only $100 in retail sales, it could increase revenues by upwards of $90 million. Notably, a report in GQ Magazine suggests that the average gun owner spends closer to $250 per year to train and maintain equipment. Thus, earning just a small piece of the Gunbroker.com pie in 2022 could result in a revenue windfall.
And there's still plenty more to like.
Targeting Broad Market Demand
Foremost, AMMO targets clients in a broad sector where demand is constant. And those customers can also be reached through several marketing channels to efficiently funnel high-margin revenues back to the company. Already, its direct-to-consumer sales model combined positions AMMO to sell more than 750 million rounds of ammunition this year. And that's not including a potential near-term military contract that could increase those exponentially later this year.
As it stands today, AMMO is already ideally positioned to capitalize on a more than $32 billion combined market opportunity. And from the looks of things, AMMO may be taking a larger share of these market opportunities sooner than many expected. Still, rather than slowing down, they are meeting that demand by expanding production capabilities. So, what looks great today can get even better tomorrow.
Thus, at roughly $7.25 a share, down from 52-week highs of $10.37, prices appear to present nothing short of a compelling investment opportunity. Moreover, as one of the fastest-growing ammunition suppliers in the sector, growing into a more appropriate valuation based on known revenues and guidance is more than likely to happen sooner rather than later. Know this, too. If ambition, blue-sky, and execution were used as a valuation metric, AMMO shares would already be far past their all-time highs.
Taking Advantage Of Market Pricing Inefficiencies
But, as many traders know, markets can be quite inefficient. The good news, however, is that that inefficiency also creates opportunities. And at current price levels, and despite its more than 114% year-to-date gains, its share-price-to-revenues multiple remains outrageously low.
However, with AMMO in hyper-growth mode, that disconnect can be short-lived. And even if AMMO stock reaches its all-time highs, roughly 30% higher than current levels, its valuation may still be left short based on peer multiples.
Thus, the bottom line is clear. Not liking AMMO stock at current valuations may be a mistake. However, a bigger one may be to not factor in where this company is going. That's the error that could cost investors substantial returns in the long run.
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