Ammunition shortages continue nationwide. Thus, investing in companies that produce and sell these products may present a compelling proposition. Small-cap AMMO Inc. (NASDAQ: POWW) should top the list for those wanting growth and value in one package. Keep in mind, by "small-cap," don't assume penny status. AMMO, Inc. stock trades on the NASDAQ markets, with a share price today of $7.35* and a market cap of roughly $826 million. And while that valuation is impressive, AMMO shares should be trading much higher using a sector valuation model. Yes, the markets have this one wrong. (*price at close on 8/06/21)

That's especially true after AMMO raised its FYQ2 guidance to $51 million last week. It's the second time in as many quarters that they have increased expected revenues. And while that's a bullish indicator in and of itself, it may also provide a clue to trade ahead of its FYQ1 report expected to be published on August 16th. Companies rarely raise guidance to miss. Keep that in mind.

Moreover, AMMO is targeting a market expected to stay exceptionally strong throughout 2022. In fact, AMMO appears to be selling products as fast as they can make them. Better still, don't expect demand to slow down. On the contrary, its transformative $240 million acquisition of Gunbroker.com adds roughly six million active site users to its target market. Opportunities created by that acquisition also add to potentially enormous revenues from military, law enforcement, and sports markets. Hence, AMMO has positioned itself to capitalize on multiple market opportunities from all directions. And with substantial growth already in its books, it's proof that their strategy is working.

It's also fair to suggest that AMMO is in hyper-growth mode.

Guidance Estimates 400% Revenue Increase

After all, hitting its $44 million target from last quarter would help AMMO post a year-over-year increase of roughly 354%. But there's more to like. AMMO said in prior guidance that it expects strong demand across its entire portfolio of high-performance products to continue into the back half of this year. Moreover, even its optimistic guidance can be enhanced through an aggressive and new marketing strategy, expanding production capacity, new defense contracts, and, yes, more revenues from its continued integration with GunBroker.com.

Know this, too. Momentum is at the company's back after it published record-breaking growth last year. In its year-end report, AMMO posted a 409% increase in comparative revenues, increased gross profit margins by 179%, cut operating expenses as a percentage of sales by 58%, and booked a 296% increase in EBITDA to $4.8 million over the same period last year. Best of all, AMMO delivered its first profitable quarter in its history, earning an adjusted EPS of $0.04, a more than 167% increase over last year.

And suppose that isn't enough to inspire interest. In that case, AMMO's FYQ2 guidance follows its potentially record-setting momentum from its first quarter that ended in June, which, as noted, will be reported next week. Thus, whether evaluating AMMO by referencing year-over-year or sequential results, AMMO makes a case for buying its stock at these levels.

Other factors make its case more compelling.

FY2Q Guidance Follows An Expected Record-Setting Performance

Foremost, despite its phenomenal growth over the past 12 months, investors are yet to see the full impact from its $240 million transformative acquisition of Gunbroker.com. That deal is expected to push revenues toward $190 million by the end of its fiscal year. They should go even higher in 2022.

Moreover, expect Gunbroker to be only a part of the bullish proposition. AMMO also expects to benefit from near-unprecedented US demand for ammunition, showing no signs of slowing down. In fact, thus far, in 2021, gun permit applications are soaring to near all-time highs, and the political rhetoric is adding fuel to the frenzy, driving consumers to the markets at a record pace.

Of course, that's excellent news for AMMO as it targets the retail consumer business. Gun owners need ammunition. And for those that think the Gunbroker opportunity is already priced in, think again.

According to AMMO, ammunition sales to Gunbroker.com's roughly six million active users accounted for only about 3% of its revenues. Hence, it's proper to assume AMMO is staring down the barrel of immense opportunity. Consider this. Selling products to even 15% of that base with a $50 purchase could translate into $45 million in revenues quite easily. And with AMMO able to cut out the middle man, its pricing and accessibility to reach this base will probably generate multiples of that number in the next year or two. That's because actual purchases per year, per user, could easily average more than $1000 after pricing in accessories, equipment, and practice ammunition. A report in GQ magazine put the bare minimum to purchase a cheap pistol and a box of ammo at $250. If so, AMMO's cut could fetch upwards of $100 million targeting only that same small percentage.

And that makes its $7.25 share price look ridiculously low. Even trading closer to its 52-week high of $10.37 doesn't show proper respect. But, while still undervaluing its revenues and guidance, it's at least a step closer toward a more fair representation of value.

Big-Ticket Markets Deliver Big Ticket Opportunities

Frankly, at this stage, it makes little sense for AMMO stock to be trading at anything less than its established highs. This year alone, AMMO expects to deliver upwards of 750 million rounds of ammunition to a diverse list of customers. And that guidance hasn't fully factored in the enormous potential from its Gunbroker.com active user base. It does, however, at least include the expected impact from its massive brick-and-mortar presence.

There, AMMO expects to capitalize on revenue-generating opportunities from having products available in more than 1600 retail locations. And with its soon completed manufacturing facility expected to triple its production capacity, its already impressive market presence is likely to grow.

Moreover, through its multi-channel distribution network, AMMO can leverage its enhanced capabilities to target a more than $32 billion market from law enforcement, military, and sports markets. The better news is that those revenues are "quality," having an immediate impact from its high-margin, high-volume sales model.

Also expounding on the value proposition, the ammunition shortages give investors months-long visibility. Keep in mind, AMMO is already serving a backlog for ammunition that increased by 125% in less than six months. Hence, assuming the surge in demand continues, which is expected, once AMMO fills those orders, expect them to get replenished. Not just from online sources, either. Recent marketing and operational initiatives connected AMMO with more than 67,000 dealers, added over 1,000 new customers and processed over $80 million in booked orders last year. Those relationships should continue to bear revenues as well.

And on the retail brick and mortar side, AMMO maximizes placement opportunities with major national brands, including DICK'S Sporting Goods (NYSE:DKS) and Cascade Farm and Outdoor. The presence there helps cover all major market channels.

Hence, it's difficult to justify the recent weakness other than to say it's related to investors' perception that pandemic headwinds may still affect the sales channels. That pessimism, though, may be overstated in AMMO's stock price.

A Surge Ahead

Base that conclusion on another factor, too. Its share-price-to- revenues multiple is absurdly low at current levels. Admittedly, no stock goes straight up. And with AMMO shares higher by about 128% year-to-date, those investors that have been in the stock for more than seven months probably aren't complaining.

Still, when good stocks get taken lower indiscriminately, investors take notice. In AMMO's case, taking note also helps expose a compelling investment opportunity. Investors only need to look at the data. AMMO executes on all cylinders, creating value in consumer, military, law enforcement, and wholesale markets. They also have cash and a respectable capital structure to capitalize on new opportunities as they arise.

Then factor in record-setting revenues and positive EPS, the firepower available to this company is nothing short of tremendous. Best of all, AMMO is telling its story, raising guidance, increasing production capacity, and expanding its sales opportunities into new markets. To anyone finding cause to not like AMMO at these levels, the advice is simple. Check your notes.

AMMO, Inc. is indeed one of the most compelling investment considerations in its sector.

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