What happened
Shares of Ammo (POWW 1.19%) are up 15.1% compared to where they closed last Friday, according to data provided by S&P Global Market Intelligence. While there was no company specific news that would account for the big jump in price, The New York Times this week reported the Pentagon is planning to boost its production of artillery ammunition by 500% over the next two years to replenish depleted U.S. stockpiles.
Because the U.S. is heavily supporting Ukraine in its defense against Russia, it has shipped large quantities of materiel to the war-torn country that have drawn down domestic reserves to dangerously low levels.
Ammo is a munitions supplier to the U.S. military and though the Times report primarily discussed artillery shells, it did note the Pentagon has shipped more than 100 million rounds of small arms ammunition to Ukraine since the war broke out.
Image source: Getty Images.
So what
Although there have been no contract announcements, Ammo opened up a new manufacturing facility in Manitowoc, Wisconsin, last October that is designed to produce various military rounds, including armor-piercing rounds up to .50 BMG, one of the most widely used service ammunitions (BMG stands for Browning machine gun).
The plant will also be able to produce more commonly used rounds, like the .380 ACP (automatic Colt pistol, a round that also happens to be designed by John Browning).
And much of Ammo's sales are to the civilian market, which has been in a slump the past few years as gun sales slowed from their torrid pace in 2020.
Last year the FBI conducted 31.6 million criminal background checks on potential gun buyers, a 19% drop from 2021, a year which itself was almost 3% below the all-time record year of 2020, when some 39.7 million background checks were performed.
It's worth noting, though, that even last year's figure would have been the greatest number of checks performed since the FBI began tracking such numbers in the late 1990s had it not been for the prior two years' totals.
Now what
Although the overall firearms industry is down, neither gun manufacturers like Smith & Wesson and Sturm, Ruger, nor other ammo makers such as Vista Outdoor have felt the effects as severely as Ammo, whose stock is down 45% over the past 12 months and off by more than 60% from its 52-week high.
There doesn't appear to be a turnaround in sight for the civilian market and any defense contracts might not materialize as it is a highly sought after source of revenue. This bounce may be as good as it gets for Ammo for a while.
