Markets continue to underprice strong small-cap stocks like this one, Real Money Columnist James ‘Rev Shark’ Deporre argues.
In a frustrating market, it’s hard not to notice the disconnection between fundamentals and stock performance.
“Picking good stocks with solid fundamentals and attractive valuations has not led to favorable results if the stocks aren’t in the right sectors or favored by the computer algorithms,” Real Money Columnist James “Rev Shark” Deporre wrote recently on Real Money.
While this scenario has been extremely frustrating for stock pickers like Deporre, there may be an intriguing way out – if you pay attention to subtle changes that suggest that stock picking matters.
“Groups such as small-caps, growth, biotechnology, etc., are coming off 12-month lows, and those that have good valuations and stories are starting to exhibit some relative strength,” Rev Shark said.
One name he’s mentioned quite often over the past year is Ammo, Inc. (POWW) .
“Management has performed exceptionally well,” Deporre said. “The company’s entire production of munitions is sold out for 2022, and it has a new facility coming online this summer that will allow it to ramp up substantially.”
Another upside point – POWW acquired GunBroker.com, which is an “eBay” for gun-related merchandise. “This segment already produced revenue of $17.6 million in the December quarter, and it is growing very fast,” Deporre noted.
POWW nearly tripled its revenues to $64.7 million in its fiscal third quarter ending in December and is expected to earn $0.33 per share for the fiscal year ending March 2022, which is a P/E ratio of just 14 for a company that is expecting revenue growth over the next year of at least 20% with better profit margins.
When asked about the stock’s performance, the company’s Chairman and CEO Fred Wagenhals commented, “It’s just a matter of keeping blinders on and focusing on your business. Keep making money and don’t do anything stupid, and make accretive acquisitions if we’re going to make one. Eventually, the stock price will be what it should be.”
“It’s frustrating that the market fails to recognize and appreciate a stock like POWW, which I believe deserves a better valuation,” Rev Shark said. “However, as the market starts to favor stock-picking again, I look for POWW to perform well.”
