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AMMO, Inc. (NASDAQ:POWW) went public on December 1, 2020, raising approximately $18 million in gross proceeds in an IPO that was priced at $2.10 per share.
The company sells ammunition and related components for a variety of end-user markets.
Uncertainties surrounding the board of directors proxy contention, the firm’s continuing revenue drop, and new initiatives to redirect the focus of its efforts mean that I’m on Hold for POWW stock in the near term until these matters are sorted out and we see revenue stabilization at the very least.
Scottsdale, Arizona-based AMMO, Inc. was founded to design, produce and market ammunition and related casings to consumers and agencies in the U.S.
Management is headed by Chairman and CEO Mr. Fred Wagenhals, who has been with the firm since December 2016 and was previously president, Chairman and CEO of Action Performance Companies, a publicly held distributor of licensed motorsports merchandise.
The company recently appointed Jared Smith as President and Chief Operating Officer.
AMMO has been subject to nomination of a new board of directors by a large shareholder in a proxy contention effort.
According to a 2020 market research report by Grand View Research, the global ammunition market was approximately $20.4 billion in 2019.
This represents a forecast CAGR of 3.9% from 2020 to 2027.
The main drivers for this expected growth are an increase in demand for small caliber ammunition for sports shooting activities with pistols and rifles.
Also, firms are continuing to produce innovative products for specialty markets.
The chart below shows the historical and forecast market trajectory for the U.S. by caliber size:
U.S. Ammunition Market (Grand View Research)
Major competitive or other industry participants include:
Total Revenue (Seeking Alpha)
Gross Profit Margin (Seeking Alpha)
Selling, G&A % Of Revenue (Seeking Alpha)
Operating Income (Seeking Alpha)
Earnings Per Share (Seeking Alpha)
(All data in the above charts is GAAP).
In the past 12 months, POWW’s stock price has fallen 58.3% vs. that of the Nasdaq 100 Index’s drop of 15.2%, as the chart indicates below:
52-Week Stock Price Comparison (Seeking Alpha)
Below is a table of relevant capitalization and valuation figures for the company:
(Source - Seeking Alpha.)
In its last earnings call (Source - Seeking Alpha), covering FQ3 2022’s results, management highlighted the inflationary pressures the firm is facing due to increased costs of "copper zinc, lead and labor" and its belief that the "U.S. is already in the throes of a recession."
In essence, the company was squeezed due to its focus on manufacturing commodity products, which management now intends to shift away from towards higher technology solutions.
The promised benefits of such a shift are that it "requires less working capital, enables higher margins, and better cash flow."
Leadership believes the firm’s acquisition of GunBroker.com will put the company in a better position to obtain data to inform its decision-making and "cultivate a wealth of opportunity."
As to its financial results, total revenue decreased by 40% due to its ammunition and its marketplace segments.
Gross margin dropped 3 percentage points year-over-year and operating income dropped into negative territory while GAAP EPS worsened to negative ($0.04) for the quarter.
For the balance sheet, the firm finished the quarter with $27.1 million in cash and equivalents and $11.6 million in total debt.
Over the trailing twelve months, cash from operations was $24.8 million and the company paid $8.2 million in stock-based compensation in the last four quarters.
Looking ahead, management expects its focus on brass casings, performance rifle ammunition and not separating GunBroker.com, which may result in increases to its gross merchandise volume and gross margins.
Regarding valuation, the market is valuing the company at an Enterprise Value / Revenue multiple of 0.9x on a material and a continuing drop in revenue.
The primary risk to the company’s outlook is management’s transition away from its commodity approach to a high-performance focus while it integrates the GunBroker.com site further into its operations.
A potential upside catalyst to the stock could include lowered inflation of commodity inputs as well as expected gains in the GunBroker.com integration.
However, the uncertainties surrounding the board of directors proxy contention, the firm’s continuing revenue drop and new initiatives to redirect the focus of its efforts mean that I’m on Hold for AMMO, Inc. in the near term until these matters are sorted out and we see revenue stabilization at the very least.
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