AMMO, Inc. (NasdaqGS: POWW) shareholders should be celebrating the transformative acquisition of GunBroker.com. The truth is, most are. However, for those who don't understand the magnitude of this deal, I'll explain the significance. First, though, know that this deal is one of the largest made in the gun and ammo industry in years. Second, know that GunBroker.com and AMMO, Inc. are considerably stronger together. And to any of the 60 million GunBroker.com members that aren't shareholders in AMMO yet, the decision to become one couldn't be more timely. Here's why:
Right off the bat, the accretive acquisition puts an exclamation point on a tremendous quarter of business. For those that missed the headline, POWW delivered a blowout quarter, highlighted by two important things. First, POWW expected to post $27 million in quarterly revenues- they actually delivered $41 million, a more than 51% increase over expectations. The second highlight was an even bigger accomplishment.
There, POWW took the revenue surge a big step further when it announced the company generated its first profitable quarter in its history. And on top of that, management remains bullish for their future, expecting revenues to continue their upward momentum and supported by scaled operations that will contribute to organic growth during the remainder of this year.
That news sent shares higher by more than 8% in May. And keep in mind, POWW is making gains against the backdrop of a weak small-cap market. In fact, despite a few pockets of intraday strength, the NASDAQ markets have been decidedly bearish. And while the 3% loss in the index doesn't seem like much, the losses can be substantially higher for individual stocks. Thus, it's excellent news that POWW has been able to hold the lion's share of its YTD gains, which currently stand at 91%.
Still, it's said that wise investors look through the windshield, not the rearview mirror when valuing stocks. And for AMMO, Inc., and GunBroker.com, the path ahead has never looked better.
Enhancing Acquisitions And Creating Shareholder Value
First, POWW's market position and reputation as a premier American ammunition and munition components manufacturer and technology leader are never questioned. In fact, while competitors struggled in the face of pandemic-created challenges, POWW got stronger by enhancing its market presence and building client relationships by staying true to its original strategy- sell only premier products and services and remain relevant to the customer.
That plan is working. Better yet, with the refinement and expansion of its ammunition portfolio, combined with an improved facility that increases production capacity, AMMO is exceptionally well-positioned to maximize opportunities created by surging customer demand. Best of all, AMMO is not a buy-and-wait company. Instead, they are in hyper-growth mode.
And they were in high gear before the acquisition of GunBroker.com. But, with that deal now complete, expectations have changed from “revenues will grow substantially" to "revenues will grow exponentially." That's great news to investors that already anticipate more than $190 million in revenues from AMMO this year. Better still, with these two great companies immediately accretive toward a common goal, there's speculation that a revenue number closer to $210 million could hit the wires.
Indeed, with POWW firing on all cylinders, and the magnitude of revenues in play, investors should consider any share price weakness as an opportunity. And its 91% YTD gains could be a prelude to bigger things to come. Remember, the acquisition of the GunBroker.com business changes the trajectory of the company. In fact, by now owning the world's largest online auction marketplace dedicated to firearms, hunting, shooting, and related products, AMMO is bigger, more diversified, and financially stronger than ever.
Keep in mind, this transaction is a big deal. Thus, it deserves big attention. In fact, it was a $240 million merger of entities resulting in GunBroker.com and certain affiliates becoming a wholly-owned subsidiary of AMMO. The excellent news is that the deal is a win-win for both. And the GunBroker team is committed to adding to its 60 million member base. That's good news for its members, especially with GunBroker.com leveraging its IT platform to bring AMMO products and a host of other merchandise to the vibrant GunBroker.com marketplace.
At AMMO, the enthusiasm is shared. And the transaction is immediately accretive to its operations. Moreover, it's a valuable milestone reached for AMMO and opens an additional vertically integrated opportunity to diversify its revenue base.
In simpler terms, this $240 million merger of assets is a transformational deal for AMMO. But it also provides GunBroker.com members a chance to own a piece of the company they love. By the way, of the 60 million registered GunBroker.com users, some have been with GunBroker for decades. Thus, when they learn more about AMMO and the combined value of the two, they may recognize the same opportunity that AMMO recognized- value is inherent to the brand.
Still, there's plenty more to like.
Seize Upon Growth When You Can
In reality, true growth stocks are rare breeds. Many make a claim in its bio, but only a handful truly live up to the expectation. AMMO is the latter. In fact, despite trading at a discount from 52-week highs, the real-time actions of AMMO present a bullish proposition. And with an expected $190 million in revenues this fiscal year, it's a story that is getting heard. Better still, with adjusted EBITDA expected to reach $65 million this fiscal year, the volume is getting louder.
In fact, investors are embracing guidance that calls for a 206% increase in YoY revenues. Expect them to reach that number, especially with POWW recently announcing a seven-figure international ammunition transaction that will hit the books this quarter. Even better, those revenues come supported by a roughly 50% gross profit margin. That's not all.
AMMO also expects its international business will capitalize on additional emerging opportunities and potentially eclipse the $30 million expected from that market. That bullishness stems from indications that global markets are normalizing from the unprecedented COVID-related slowdown. And if the pace toward normalized commerce continues to accelerate, even POWW's bullish guidance could likely be conservative.
Keep in mind, too, AMMO reported a 51% increase over its preliminary Q1 estimates. Chalk that up to the pace at which markets are recovering. Remember, too, these gun and ammo markets didn't go away; they were interrupted. Thus, with analysts expecting demand recovery to be V-shaped for the ammo sector, AMMO is at its strongest when the market needs them most.
A Massive Market Presence
Notably, AMMO is locked and loaded for growth. Even better, they are prepared to serve its diversified base that demands more than 750 million rounds per year from the company. And with recent facility upgrades that deliver scale to its multi-channel distribution capability, the better news is that meeting intense demand from military, law enforcement, sport, and self-defense markets are achievable. In fact, AMMO is meeting that demand head-on—moreover, it's only one part of several billion-dollar market opportunities.
AMMO also targets a massive and active $13.9 billion global market in the commercial and retail market. Including military and law enforcement adds an additional $18.5 billion into the mix. Thus, AMMO is targeting a combined $32.4 billion global market just for the markets above. And, know this. Firearm background checks increased by 61% and 78% YoY in 2020 and January 2021, respectively. Historically, it's the most reliable leading indicator for gun sales and obviously sets expectations for robust sales during the remainder of 2021.
In fact, the media may be the demand driver. A report in Forbes noted that the Pre-Biden gun spree outstripped the ammunition supply for certain weapons. For gun owners, political rhetoric translated to empty shelves for even the small caliber ammunition. And according to reports, retailers and wholesalers are still needing supply. And that's good news for AMMO.
In fact, AMMO has already said its ammunition backlog grew by 125% in less than six months into February of this year. That surge in demand led AMMO to open a call center last year, which serviced more than 67,000 dealers and added more than 1,000 new customers that generated more than $80 million in booked orders.
That strategy to serve its customers directly resulted in AMMO earning positioning in 1,600 retail stores and established a significant e-commerce presence with notable brands like Rural King, DICK'S Sporting Goods, and Cascade Farm and Outdoor.
That growth will keep its more than 160,000 combined square feet of production space busy this year. In fact, its new $12 million state-of-the-art ammunition and brass case manufacturing plant is expected to help contribute toward a tripling of current output. Better still, these facility enhancements are expected to contribute up to $1 million in savings through operational efficiencies and cost-cutting strategies.
The bottom line is clear - there's a lot to like about AMMO, Inc.
Value Earned, Value Gained
AMMO is an example of a great company before the pandemic that got even better during. They proved that standing still does nothing to contribute to a growth strategy. Instead, they completed a transformational acquisition, sent revenues surging, developed operational efficiencies, and enhanced facilities to triple production. And they did all that when markets were at their weakest.
Now, with global markets returning to near normal, the back half of 2021 could be the most profitable period in AMMO's history. And when the markets return to FULL normal, expect AMMO to surge once again.
Deservedly so.
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