2020 has been a tumultuous year for everyone, but a tad more capricious for the U.S. Apart from the novel coronavirus, the murder of African-American George Floyd led to widespread protests and civil unrest. If that wasn’t enough, the U.S. general election is in November, with the Democrats and the Republicans turning it up a notch. These developments cumulatively led to a massive surge in the demand for guns. As a result, U.S.-listed gun and ammunition stocks outperformed the broader market.
A record 3.93 million background checks to buy firearms were filed in June, according to the FBI.
It is surprising that a lot of these ammunition stocks outperformed some of the biggest tech companies. With the continuing protests and the general election on the horizon, these stocks will continue to perform exceedingly well.
Let’s now specifically look at some of the ammunition stocks which have benefited from the recent demand spike:
Ammunition Stocks: Vista Outdoor (VSTO)
Vista Outdoor is a reputable outdoor sporting goods, ammunition and gun accessories manufacturer. The company has had its fair share of ups and downs, but recent headwinds led to a surge in demand. Hence, VSTO stock is up about 308% year-to-date.
Its first-quarter results were impressive, as revenues grew 10% with a 17% increase in shooting sports sales. As a result, adjusted earnings per share grew by a mammoth 738% to 51 cents compared to the prior-year period. E-commerce sales were the star of the quarter, registering 40% growth compared to the same period last year. The robust first-quarter performance allowed the company to expand its free cash flow to $73 million.
“We had an incredible start to our fiscal year, and we see continued strength going forward in both our Outdoor Products and Shooting Sports segments, with increasing participation rates across all of our categories,” Chief Executive Officer Chris Metz said. The company plans to effectively utilize its internal resources to enhance its product pipeline, pursue attractive acquisitions, and expand its e-commerce channels.
Olin Corporation (OLN)
Olin Corporation, a chemical industry stalwart, shed almost 25% of its value year-to-date. On the face of it, you’d probably want to avoid it. However, recent tailwinds in its ammunition business and an impressive dividend yield make OLN stock an attractive investment.
It recently announced its weaker than expected second-quarter results, with a 22% drop in its net sales. The bulk of this decline is attributable to the fragility of the caustic soda market. However, results for its ammunition business Winchester, were completely the opposite, posting a 22.1% revenue growth.
It is worth noting that the company is not a pure ammunition business, but recent tailwinds in the sector will help it weather the storm. Additionally, the company announced that it would have complete operational control over the Lake City Army Ammunition Plant from October this year.
Another positive for the company is its impressive dividend payout history. It has paid a dividend for 374 consecutive quarters and though dividend coverage has suffered lately, it still remains adequate. Moreover, the company’s liquidity boosting measures helped to optimize its working capital position and cash flow conversion.
Ammo Inc. (POWW)
Ammo Inc. is a promising small-cap American ammunition company. The surge in demand for firearms couldn’t have come at a better time for the company, which is experiencing its best year yet. POWW stock gained 31.6% year-to-date.
It recently announced its blow-out second-quarter results with a 125% increase in revenues to $9.7 million compared to the prior-year period. Revenue improved across all departments, especially for its proprietary and standard ammunition wing, which grew more than 300%. Additionally, net loss improved by $700,000 to $3.1 million.
“The demand momentum experienced at the end of the fiscal year 2020 has certainly accelerated in our first fiscal quarter,” CEO Fred Wagenhals said. It now has its largest backlog at $45 million. Only 22% of this number is attributable to the military and enforcement channel. With the company signing a six-figure deal with the European law enforcement agency, this channel could take precedence over its commercial business.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.