We came across a bullish thesis on AMMO, Inc. (POWW) on Twitter by northeasternsvf. In this article, we will summarize the bulls’ thesis on POWW. AMMO, Inc. (POWW)’s share was trading at $1.83 as of Feb 20th. POWW’s trailing and forward P/E were 17.35 and 13.35 respectively according to Yahoo Finance.
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Ammo, Inc. (POWW) is undergoing a transformative shift by divesting its low-margin ammunition manufacturing business to focus entirely on GunBroker.com, the leading online firearms marketplace in the U.S. GunBroker.com generates revenue through transaction fees with a take rate of approximately 5-6%, operating as a high-margin, capital-light business. The company has been enhancing the platform with multi-cart selection and integrated payments to drive additional cross-sell opportunities. Despite POWW’s recent stock appreciation, the market has yet to fully re-rate the company post-spin-off, creating an opportunity to invest in a best-in-class e-commerce platform at a significant discount to peers.
The sale of the ammunition segment to Olin-Winchester for $75 million removes a capital-intensive, low-margin business and leaves behind GunBroker.com, which boasts 86% gross margins and 43% EBITDA margins. Given that maintenance capex is minimal, the business is positioned to generate substantial free cash flow. POWW is currently trading at an estimated 4.3x EV/26E EBITDA, a stark discount to other scaled e-commerce businesses with high market share, which typically trade closer to 8x. As the market recognizes the improved financial profile of the remaining business, a multiple expansion could drive meaningful upside in the stock.
Despite its attractive fundamentals, the stock remains weighed down by concerns over ongoing litigation involving GunBroker.com’s former founder and CEO. While the lawsuit seeks damages of at least $140 million, the outcome will not be clear until after the trial, scheduled for late July. Importantly, POWW has already received $75 million from its recent divestiture, mitigating the risk of financial distress. The lawsuit primarily represents a financial liability rather than an operational risk, as GunBroker.com has been fully integrated into POWW, minimizing potential disruptions. Additionally, a February court ruling dismissed an aiding and abetting claim against executives, suggesting that the broader case may not be as severe as initially feared.
Another overlooked growth catalyst is the company’s ability to increase GunBroker.com’s take rate through higher-margin ancillary product sales. Management has recently launched features to facilitate cross-selling of accessories such as grips and sights, which carry higher take rates than firearms. Given that these initiatives have only been in place for a few months, they are not yet fully reflected in earnings forecasts. As these efforts gain traction, they could provide upside surprises to margins and revenue growth.
POWW also faces regulatory scrutiny due to past reporting weaknesses, particularly related to executive compensation and compliance with NASDAQ listing requirements. The worst-case scenario would be a potential delisting if compliance is not restored. However, management has already submitted a remediation plan, and NASDAQ is likely to grant an additional 180-day extension. The resignation of the previous CFO, under whose tenure these issues arose, further signals that the company is taking corrective action. Investors should monitor the resolution of these compliance matters, but the long-term impact is likely to be minimal if the company successfully regains compliance.
With $75 million in cash from its divestiture, the company’s capital allocation decisions will be crucial to unlocking shareholder value. While reinvestment into GunBroker.com’s operations is not necessarily a negative outcome, shareholder-friendly initiatives like buybacks could accelerate a re-rating. POWW’s undervalued business, dominant market position, and various growth catalysts create a compelling asymmetric risk/reward opportunity for investors. If the company successfully executes its operational improvements and achieves a re-rating in line with comparable e-commerce businesses, the stock could reach $2.59 by March 2026, offering substantial upside from current levels.
AMMO, Inc. (POWW) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 3 hedge fund portfolios held POWW at the end of the third quarter which was 6 in the previous quarter. While we acknowledge the risk and potential of POWW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than POWW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.