What happened

Call it a lesson in why earnings -- not just revenue -- still matter.

On Tuesday, shares of ammunition manufacturer Ammo (NASDAQ:POWW) tumbled nearly 4% after the company -- which had rocketed earlier this year on the back of multiple press releases boasting of booming sales -- admitted that despite all those sales, it still couldn't earn a profit. In Wednesday trading, the Ammo sell-off is accelerating, and shares are down 8.7% as of 10:45 a.m. EST, twice as bad as yesterday.

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

The news wasn't all bad. Confirming an announcement first made more than a month ago, Ammo ended up growing its fiscal third-quarter 2021 sales 500% in comparison to Q3 2020. Furthermore, Ammo increased its gross profit margin earned on the $16.6 million in quarterly sales to 20%.  

On the bottom line, however, Ammo still ended the quarter with a big net loss -- $1.9 million -- although that was still better than the $2.9 million it lost a year ago.

Now what

Ammo advised that its fourth-quarter revenue should approximate $20 million, which roughly tallies with the 317% increase Ammo promised in mid-January. Similarly, the company doubled down on a promise to hit $58 million in sales for the full year. Technically, if the company hits that on the nose, it will fall a bit short of the $58.2 million management promised last month -- and that could be another reason investors are selling today.

If you own Ammo stock, therefore, you should probably cross your fingers now and hope management was just rounding to the nearest million. Because the last thing this stock needs right now is to report a sales miss in three months.

This article represents the opinion of the writer(s), 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.

 
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.