Why AMMO Shot 42.7% Higher in June | The Motley Fool

What happened

Shares of AMMO (NASDAQ:POWW) lit up the market in June, rising 42.7% according to data from S&P Global Market Intelligence following its announcement that it was being included in the Russell 2000 index and the Russell Microcap index.

The ammunition manufacturer then reported fiscal fourth quarter earnings at the end of the month that showed sales and profits shot out the lights.

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Image source: Getty Images.

So what

Like other ammo makers and firearms manufacturers, AMMO is enjoying the fruits of an unprecedented boom in demand for guns. Sales quintupled in 2020 and profits quadrupled.

Last year background checks on potential gun buyers by the FBI reached a record high of 39.6 million, or 40% more than in 2019. Even when adjusted by the National Shooting Sports Foundation to remove duplicate checks, such as those performed to remove checks on existing concealed carry weapon permit holders to see if they’re still eligible, the near 22 million checks they counted was 60% higher than the year before.

Gun sales readily turn into ammunition sales, particularly for the 8 million individuals who made their very first firearms purchase last year.

Now what

A stock’s inclusion in an index like the Russell 2000 or the Russell Microcap tends to cause its price to jump because mutual and exchange-traded funds that track the indexes have to buy the stock to keep in line.

Couple that with some raucous sales and profit growth, and there’s the fuel needed to send AMMO’s stock soaring.

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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