One industry that is set for robust growth in 2022 and beyond is the ammunitions sector and Scottsdale-based AMMO, Inc. (Nasdaq: POWW, POWWP), a leading vertically integrated producer of high-performance ammunition and components and owner of GunBroker.com, the largest online marketplace serving the firearms and shooting sports industries, is benefitting from the sizeable growth.
American small arms ammunition sales in the commercial and retail sectors have a market valuation of $1.9 billion and when combined with the law enforcement, military and foreign allies sectors the market size reaches $18.5 billion. Already this is a sizeable market opportunity and estimates are showing growth should exceed 4% annually.
This is an industry where buyers have large purchasing power and companies with modern supply chains and sound operational tactics can benefit with exceptional margins. AMMO, Inc. is growing quickly, smartly and taking full advantage of the larger market opportunities that will continue to place it ahead of its competition.
AMMO Inc. (Nasdaq: POWW, POWWP) develops, designs, manufactures, and sells ammunition in America and internationally. Not to be confused with a gun manufacturer or retailer, AMMO is a pure play focused on the growing demand for ammunition. The company has built a comprehensive product line with more than 60 different products available. AMMO offers next generation products such as STREAK Visual Ammunition, their patented technology that allows the shooter to visually see the bullets’ path toward its target, and BioAmmo, the biodegradable hunting and sport shooting shotgun shell.
AMMO operates a multi-channel distribution network selling to various retailers, shooting ranges, and large-scale distributors and buying groups. AMMO successfully acquired GunBroker.com, the largest online marketplace for legal firearm sales, ammunition, and accessories in America.
The needs of law enforcement agencies, hunters, gun enthusiasts, and militaries all differ to a large extent. AMMO has built a comprehensive portfolio of products and has the operational capacity needed to serve all players within the ammunitions market.
On May 3, 2021, AMMO Inc. announced the successful acquisition of GunBroker.com. The platform, home to more than six million active users, is an online marketplace matching buyers and sellers focused on the ammunition, firearms, accessories, and broader outdoors market. The acquisition provided AMMO access to a business model with consistent cash flow, low operating costs, and industry leading margins. These attributes stem from the fact that AMMO (through GunBroker.com) plays no part in the distribution or sale of goods. The platform is essentially the eBay for all things ammunition, guns, and outdoors. When transactions occur, the seller is responsible for shipping and the price is determined through interacting on the site. GunBroker.com then charges a service fee for supporting the transaction.
With a 20-year operating history, this acquisition has provided AMMO with a powerful growth driver that could require low- to no-cost marketing or advertising expenses. The platform allows for mass scalability with minimal investment, and with an exemplary track record of credibility and 100% compliance with industry regulations, GunBroker.com has a strong network effect, making it nearly impossible for competitors to match its value proposition.
Bolstering Manufacturing Capacity
Early on AMMO, Inc. realized the importance of being vertically integrated as it allowed the company flexibility and cost savings needed to match a dynamic industry. At current capacity, AMMO can produce more than 450 million rounds annually, yet even with industry leading production capacities, the company is still struggling to match supply with the market demand of their products – a situation not limited to AMMO, but endemic to the entire ammunition industry. To remedy this, the company is building a 165,000-square-foot facility located in Manitowoc, Wisconsin. This new facility will feature a $24 million state-of-the-art ammunition and brass case manufacturing plant effectively doubling current capacity.
The new facility will be open July 1, 2022, and will help AMMO realize up to $1 million in operational efficiencies and cost cutting opportunities.
Thoughts on Valuation
Currently trading at $4.98 at the time of writing AMMO is below its 52-week high of $10.37 a share. This decline in share price can be attributed to the current market dynamic comprising rising interest rates and elevated inflation. The company has already reached profitability, sporting profit margins from 43% and will continue to improve these numbers as top line numbers continue to grow, as well as executing on significant cost saving opportunities. Plus, with over $32 million in cash and total debt of only $8.71 million, AMMO has the financial flexibility to aggressively pursue future growth opportunities.
It is rare to see a company with YOY revenue growth of over 400% who is also profitable trade so far below previous highs, however, recent selloffs of high growth companies have presented investors the opportunity to buy a phenomenal company whose best days are still ahead.
AMMO has a robust product inventory and an efficient business model needed to become the premier ammunitions manufacturer and distributor in the industry. The company continues to experience incredible growth and has yet to take full advantage of the international market opportunity. With a new state-of-the-art facility set to open in the second quarter of 2022 providing the required capacity to facilitate further growth, AMMO should further improve its already impressive profit margins.
At current prices, the stock has been substantially de-risked and is now showing signs of being significantly undervalued, with this, investors would do well to have AMMO at the top of their buy lists.