Gun ownership in America has never been more popular. Approximately 30 percent of adults report owning one or more guns themselves – more than 81 million people – and roughly 40 percent of adults say they live in a household with a gun.
All in all, the total number of civilian-owned guns is estimated at around 393 million – or 120 for every 100 US citizens. That number is made possible by the fact that average gun owners have five guns in their possession.
Americans legally purchased more than 40 million guns in 2020 – a 40 percent increase over 2019. That’s good news for gun manufacturers and distributors. It’s even better news for companies that manufacture and distribute ammunition.
AMMO Incorporated has been around since 1990. At one time, its stock was valued at more than $195 per share. Unfortunately, it was all downhill after 1998, and shares haven’t traded over $10 since 2000.
Lately, investors have demonstrated a little more interest in AMMO, and they are asking the critical questions. Will increasing gun sales translate into higher profits for AMMO? If so, what effect will that have on AMMO stock? Will AMMO stock go up? In other words, is AMMO stock a buy?
Arizona-based AMMO is in the business of designing and manufacturing ammunition products for civilian sport shooting and self-defense, as well as military and law enforcement use.
Though the company technically dates back to 1990, it was relaunched in 2016 to bring innovation and revitalization to the somewhat stagnant munitions industry. Among other products, AMMO offers its in-house collection of advanced ammunition solutions, including STREAK Visual Ammunition.
In 2021, AMMO acquired GunBroker.com, which is an online marketplace for everything related to firearms. Users buy and sell firearms, archery equipment, swords, knives, and related supplies in a manner similar to eBay and other online auction sites.
This acquisition has transformed AMMO from an unprofitable and relatively forgotten ammunition manufacturer to a profitable company with a growing user base. The merger is less than a year old, and already its success has prompted new interest in POWW stock.
Biggest Risks Affecting AMMO
Aside from the fact that this was a struggling company before the GunBroker.com acquisition, there are two important risks to consider before buying POWW stock.
First, there is plenty of competition in the guns and ammunition space, and the online auction platform isn’t difficult or costly to duplicate. GunBroker.com enjoys solid brand recognition, but that is its only edge if a simpler, less expensive competitor comes along.
Second, GunBroker.com’s activities are currently legal in the United States, but that could change with new regulations. Restrictions on gun sales are constantly debated – and online gun sales even more so. It is possible that a law limiting this type of online sale could eventually pass. The details of such legislation would determine exactly how AMMO would be impacted.
Who Are The POWW Competitors?
The guns and ammunition industry is complex, primarily because it is so controversial. Politics, social issues, and the fundamental nature of the product mean endless pressure from external sources.
Nonetheless, there is significant demand in the United States for firearms and related supplies. In 2022, the US market is valued at $18.2 billion, and it has grown an average of 5.7 per year since 2017.
Major players in the US guns and ammunition industry include large companies like General Dynamics, BAE Systems, Vista Outdoor, and Northrop Grumman. In fact, these four hold most of the market share.
Other POWW competitors include Olin, Smith & Wesson Brands, and Sturm, Ruger & Company.
AMMO Stock Forecast
AMMO management is quite optimistic about the company’s prospects, which translates to enthusiasm over the future of POWW stock. Much of that optimism comes from the company’s success in the 2021 calendar year, which included large gains in key areas.
For example, fiscal Q3 2022 (period ending December 31, 2021) net revenue increased by 289 percent year-over-year. Income went from a net loss of $1.9 million to a net income of $9.1 million. Diluted earnings per share went up by 275 percent, and adjusted earnings per share increased 600 percent.
The company sold 100 percent of its production for fiscal 2022, which marks a significant change over the previous year. The online platform is attracting an average of 55,000 new users every month, and the number of auctions completed went up by 33.4 percent year-over-year.
Most of the financial gains are due to the 2021 acquisition of GunBroker.com, which has expanded the company’s market considerably.
In addition to the popularity of the online platform, AMMO is confident that demand for ammunition is far higher than supply. When its new manufacturing facility opens in the summer of 2022 and production capacity triples, AMMO expects to see tremendous sales growth.
Chairman and CEO Fred Wagenhals’ most recent letter to shareholders doubles down on previous guidance for fiscal 2022 (the period ending March 31, 2022). The company projects a total of $250 million in revenue, which would represent a 288 percent increase year-over-year.
Adjusted EBITDA is expected to reach $80 million for the full year.
What Is AMMO Price Target?
POWW stock has been so low for so long that it gets very little analyst coverage. Of the handful that offered guidance for AMMO’s next 12 months, all agree that AMMO stock is a buy.
The AMMO price target ranges from $8 per share to $12 per share, with a median target of $11.50 per share.
When compared with current share prices (as of mid-March 2022), the median target represents an increase of more than 140 percent.
Is AMMO a Buy or Sell? The Bottom Line
AMMO stock saw solid growth over the past five years – more than 60 percent as of mid-March 2022. However, it has lost nearly 25 percent of its value in the past 12 months and more than 12 percent year-to-date.
Those figures would be even more dismal had AMMO not reported a strong fiscal Q3 2022, then earned some positive press over its offer to donate one million rounds of ammunition to the Armed Forces of Ukraine.
In early March, share prices went up roughly eight percent in response to AMMO’s support for soldiers fighting against the Russian invasion of Ukraine.
The boost from a one-time donation is unlikely to deliver substantial short-term growth, and it won’t have much of an impact on long-term growth at all. But the promising financials could be an opportunity to jump-start a new period of prosperity for the company and its shareholders.
Overall, AMMO is a riskier bet than most, given its returns in recent years. Those considering buying POWW stock should determine how it fits in with their overall strategy. As with any trade, balancing level of risk tolerance, investment horizon, and how AMMO stock blends with the rest of the portfolio are a must before opening a position.
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