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Why Ammo Stock Just Popped 17%

By Rich Smith - Jan 6, 2021 at 11:33AM

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This is more than just a story about Democrats winning the election.

What happened

It's looking a lot like the Democrats will control the White House, the House of Representatives, and the Senate, with early polls out of Georgia suggesting the Democrats won both of the Senate races in yesterday's runoff election. This may be the reason that firearms ammunition manufacturer Ammo Inc. ( POWW 4.32% ) is soaring 17.4% as of 10:30 a.m. EST.

But it's probably not the whole reason.

Colorful display of ammunition in different shapes and sizes

Image source: Getty Images.

So what

If you haven't heard of Ammo, that's no huge surprise. As recently as six months ago, this stock was trading just a few cents above $1 a share -- a veritable penny stock. But ever since President-elect Joe Biden won the White House in November, this stock has been on a tear, roughly doubling in share price since Nov. 3, 2020, as investors bet on a "run on guns" and ammunition before the new administration gets a chance to ban guns forever.

(That's probably not going to happen, by the way, but it's what investors are betting people think will happen.)

Now what

And as I say, that's part of the reason Ammo stock soared today, because with both the executive and legislative branches under Democratic control, there is an increased chance of new regulation on guns and ammo. At the same time, though, I have to think that the press release Ammo put out on Monday also had something to do with this stock's recent strength.  

In that release, Ammo forecast that its financial results for the fiscal third quarter of 2021 will show a nearly 500% year-over-year increase in revenue to $16.5 million, 10% better than the $15 million in sales Ammo had previously predicted.

For investors, this sounds like great news. I'd only add one small caveat, however, and that is that in its entire history as a publicly traded company, Ammo Inc. has never once reported an annual profit, or a quarterly profit, either. It's also notable that in ballyhooing its sales success this past quarter, management avoided promising to earn a profit this time around, too.

Long story short: No matter how much ammo Ammo sells, it still seems incapable of earning a profit -- and until it figures that out, I suspect you can find a better place to invest your money.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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