With earnings season in full force, pay attention to AMMO, Inc. (NASDAQ: POWW, POWWP). Why? Because if history is a guide, they are about to deliver another set of record-setting earnings. Better still, beyond expectations for POWW to meet raised guidance of $55 million this quarter, investors will be paying attention to management's prior suggestion of the company being on track to reach upwards of $400 million by 2024. If they add more color to that proposition, shares could surge.

In fact, combining the expected surge in Q3 sales with robust guidance, there would be justification for AMMO's roughly $724 million market cap to become a launchpad for substantially bigger gains than the 5% posted since last week. Thus, ahead of what could be record-setting financials, getting ahead of this trade may be a wise consideration.

Frankly, savvy investors appear to be doing that. Shares have been trading about 7% higher since the start of the month. And the reasons for the bullishness are apparent. AMMO is doing the right things in the right markets at the right time.

Video Link: https://www.youtube.com/embed/DgRQLFQYp0A

Expecting A Surge In Revenues

Moreover, they are showing positive results from their efforts. An important indicator is obviously increasing its prior fiscal second-quarter revenue to $55 million for the period ending September 30, 2021. That's about 9% higher from where it was initially. While that update went under the radar during a turbulent period for the markets, the substance of what's at play keeps the value opportunity well intact.

The better news is that its raised guidance still doesn't accrue all of the value expected from its $190 million acquisition of GunBroker.com, the largest online marketplace serving the firearms and shooting sports industries. Revenue-generating opportunities from that six million member base alone can send revenues significantly higher. And it very well may.

A clue came from the company, which said its transaction activity at GunBroker.com is robust, even compared to last year's record-setting performance. Further, management was even more bullish in its commentary, saying that investors should not overlook the traction expected from its implementing initiatives to accelerate the growth, including engaging with manufacturers, distributors, and importers to expand the marketplace offerings. And with a history of delivering on guidance, it may be wise to follow that lead.

Better still, AMMO has the operational muscle to back up its optimistic guidance.

Demand From Public And Private Markets Surge

That's important. Further, when AMMO says that growth in its core ammunition business continues to be driven by strong underlying demand for its unique, high-performance products, a proper translation may mean "higher revenues."

And that would make sense after consolidating manufacturing operations this past April in its Manitowoc, Wisconsin plant. As a result of that move, AMMO said it now can at least double its priming and loading capacity and increase its brass manufacturing capacity by approximately 15%. Additional production enhancements are planned for operational deployment in the near term. Thus, AMMO is positioned to meet an even sharper rise in demand.

And remember, AMMO serves several distinct markets. In addition to its retail focus, potentially transformational product orders can come from the military. In fact, in September, AMMO announced being awarded a contract from the Irregular Warfare Technical Support Directorate (IWTSD), operating under the U.S. Department of Defense. That order is for AMMO to design and manufacture signature-on-target rounds (SoT) to support U.S. military operations. For obvious reasons, the size of these contracts is often kept from the public to not tip the government's hand on military weaponry. That's understandable.

But, while the contract dollars may be a secret, those that follow the sector and similar contracts know that the size of these contracts can quickly add up to billions of dollars. Better still, it's unlikely that super-specialized ammunition, like AMMO is developing, can be bid on by other suppliers. Mixing and matching artillery isn't the most common practice when servicing specialized weaponry. And this product is special.

In fact, it's state of the art, allowing warfighters the ability to see the impact of rounds fired from their weapon systems on a wider variety of targets, both day and night. The specialized SoT ammunition also allows the machine gunner to see bullet impacts without a visible signature in-flight to expose their firing location. For U.S. troops, this innovative ammo can be a life-saver.

Better yet, its advanced capability will increase survivability by reducing firing position identification and ultimately increasing lethality by supporting the shooter to place more rounds on target. In short, news of that contract should have sent valuations soaring.

But since it didn't, it keeps the investment proposition in the crosshairs.

Optimism Abounds In 2021-22

That contract adds to more revenue-generating firepower from AMMO's reported $238 million order backlog expected to turn into cash in Q3 and Q4. And with its enhanced manufacturing facility designed to increase capacity by nearly 4X, AMMO should have no problem winding down that backlog. Still, with demand at near-record levels, the excellent news is that the backlog will likely be replenished with new orders.

There's more excellent news there, too. Laws of supply and demand are making the market a "sellers" marketplace. Thus, already strong margins are expected to get even stronger. And presume that trend to continue after a Department of State order went into effect limiting all ammo-related imports from Russia. By the way, the DoS is doing more than limiting Russian imports; it has prohibited them entirely for at least the next 12-months. Thus, while the consumer gets squeezed, AMMO could benefit from an intensified revenue-generating tailwind.

Still, we haven't gotten to the best part, where the value from GunBroker.com can transform AMMO into a revenue-generating juggernaut. Why so optimistic? Because AMMO has noted that only about $12 million of high-margin marketplace revenue came through its Gunbroker.com acquisition last quarter. Expectations are for that number to surge in coming quarters.

That's likely, especially noting that the roughly six million active users at Gunbroker.com only contributed about 3% of its revenues from gun and ammunition sales. Part of that was not having a supplier at its side. Now, that's changed. Hence, with AMMO in the mix, an enormous revenue-generating opportunity is created by meeting Gunbroker user interest with production and direct-to-consumer capabilities. Expect that revenue contribution to increase significantly in the comping quarters.

New Facility Increases Production Capacity

Furthermore, AMMO has the means to meet considerable demand increases. Its new facility is designed to quadruple production to meet demand from its presence in more than 1600 direct-to-consumer locations. Keep in mind, AMMO isn't a small player as it is. They already expect to sell upwards of 750 million rounds of ammunition this year. And that's not including its newly awarded military contract that could exponentially increase those totals.

Better yet, as AMMO continues to integrate its Gunbroker.com asset, it can leverage being in its best position ever to capitalize on the combined $32 billion in sales opportunities from its core target markets. One more thing- AMMO, Inc. is American-owned and American-made. Hence, what's not to like about this company.

In fact, finding a single fault with AMMO is difficult due to record sales, highest ever profits, a backlog approaching $240 million, and a new facility that can quadruple production. The only part missing may be unsponsored analyst coverage, which could come soon. If so, putting peer multiples next to AMMO metrics could put AMMO on the path toward 52-week highs of $10.31. At those levels, it would fill the current valuation disconnect. But, forward-looking, it would just be a starting point.

Thus, as earnings approach, expect the momentum to build. The better news is that not only is attention well deserved, but investors can also take advantage of a stock that is truly undervalued. In days of massive multiples given to "maybe successful" companies, finding one like AMMO that actually deserves a raise is refreshing. It's also an opportunity.

Put simply, keep AMMO, Inc.'s stock in the crosshairs. In fact, with management a habitual deliverer of good news, it may be the best time ever to pull the investment trigger.

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