3 Perspectives on Ammo’s Q2 Bull’s-Eye Earnings Results

Ammunition manufacturer Ammo (NASDAQ:POWW) made something of a bang on Monday, Aug. 16, with a second-quarter 2021 earnings report that beat Wall Street expectations on both the top and bottom lines. After a brief dip, the company’s share price shot higher, rising more than 6% by midday on the Wednesday after the report.

Investors appear pleased with the bullet maker’s gains, but should they be upbeat given the current charged political climate surrounding firearms? Let’s take a closer look and consider three major points about Ammo’s situation. At least one take on the situation sounds a note of caution, but the bull case for Ammo looks strong overall.

Image source: Getty Images.

1. Ammo’s direct sales are making a direct hit

Marksmanship is a perishable skill, as anyone interested in shooting for hunting, self-defense, serious competition, military or police service, or just “plinking” fun knows, so a steady supply of bullets is needed to maintain it. When ammunition began to sell out across most outlets during 2020 and prices skyrocketed, the situation offered an opportunity to relative newcomer manufacturers in the industry to profit by helping address the shortage.

Ammo seized the initiative and is selling plenty of product. Its Q2 revenue exploded 360% year over year to $44.5 million, of which $28 million came from ammunition sales. The company also has a backlog of $238 million in ammunition orders from “distributors” and “big box stores,” according to CEO Fred Wagenhals. Gross margin rose from 11.1% to 42.7%, showing the profitability of addressing the ammunition shortage. The company’s adjusted earnings per share (EPS) rose from $0.01 net loss per share to $0.13 EPS.

Nothing succeeds like success, and Ammo’s gains give it the ammunition, as it were, to continue expanding production. Wagenhals claimed during the Q2 earnings conference call that “demand trends in the US domestic market and international ammunition markets remain extremely strong and show no signs of slowing.” This claim is supported by research from outdoor sports, hunting, and shooting market researcher Southwick Associates, which suggests that the conditions leading to the ammunition shortage are still in place and that demand will remain strong for the foreseeable future.

2. It’s also profiting from other facets of the business

Ammo is obtaining revenue not only from direct ammunition sales but also from other facets of the ammunition and firearms market. One significant addition was the acquisition of online firearms auction website GunBroker.com, which features listings for used, new, and antique firearms as well as ammunition, parts kits, optics, accessories, and other items of interest to gun owners. Approximately a quarter of Q2’s net revenue, $12.3 million, came from GunBroker, which charges listing fees and additional fees based on the final value of successful auctions.

GunBroker is one of the most significant…