Investment Memo: AMMO, Inc. Preferred Stock (POWWP)
Originally circulated November 5, 2024 at 3:15 PM
At DiMauro Partnership, LTD., the majority of capital is committed to compounding vehicles that can grow for years. But, as Buffett often did in his Partnership years, I also allocate a small portion to special situations - “generals” or “work-outs” - where mispricing offers high, near-term returns with limited downside. As of November 5th, 2024, Dimauro Partnership, LTD., invested 5% of portfolio assets into POWWP.
The preferred stock of AMMO, Inc. (ticker: POWWP) (now called Outdoor Holding Company) falls squarely in that category.
The Security
AMMO, Inc. issued Series A Cumulative Redeemable Perpetual Preferred Stock. The terms are straightforward:
Coupon: 8.75% ($2.22 per year).
Current Price (Nov 5 2024): $19.46.
Yield on Cost: ~11.4%.
Redemption Price: $25.00 (at issuer’s option, anytime).
Seniority: Preferred holders rank ahead of common equity in a liquidation scenario.
The Balance Sheet
Preferreds only make sense if the underlying company has the financial strength to keep paying. AMMO does:
Net tangible assets: ~$150M.
Total debt: ~$43M, of which $35M is this preferred.
Cash balance: ~$55M.
In short: the preferreds are not buried in a mountain of leverage.
The Opportunity
Cash yield: At $19.46, the $2.22 annual dividend translates into an ~11.4% yield -covered by the company’s financials.
Redemption upside: If AMMO decides to retire this security, it must pay $25 per share. That’s an immediate ~22% capital gain from current levels.
Downside protection: Preferred holders sit ahead of common shareholders in bankruptcy, and AMMO’s balance sheet suggests tangible coverage well above the preferred obligation.
This is not a bet on growth, momentum, or story stocks. It is a contractual claim with math on its side.
Why It’s Mispriced
Investors often overlook small preferred securities because:
They’re too small for institutions.
They lack the liquidity large funds require.
The “AMMO” name and business line deter many investors from looking deeper.
But ignoring the headline, the structure is simple: earn 11% annually as we wait patiently, with a 22% kicker when redeemed.
The Partnership View
This is precisely the type of opportunity Buffett would have labeled a “work-out.” It is not a compounding machine; it is an income instrument with an embedded capital gain, trading at a discount because most investors simply aren’t paying attention.
In a world starved for safe yield, here we have:
Double-digit current income.
A balance sheet providing margin of safety.
The prospect of ~30% total return when redemption occurs.
For a small, opportunistic portion of the portfolio, it is both rational and attractive.
👉 All Investment Memos are archived in the “Investment Memos” section. My goal is not to celebrate ideas after they work, but to publish the thinking beforehand—so the record stands, win or lose.
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