A Long-Term Favorite Provides Another Buying Opportunity
I'm in this small-cap name for the long haul. Here's how I'm adding more ammo.
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Byrna Technologies BYRN is one of the longer-term holdings in my portfolio. I have had exposure to this small-cap name for over three years now and have owned it in some form since early 2022 when the shares traded in the mid-single digits. The stock has roughly quadrupled over that time.
Fortunately, given I frequently use covered call trades (and almost exclusively these days), the shares have provided many buyable dips even as the equity has moved up sharply over the past few years. What's more, the options against the stock are liquid and lucrative.
Byrna is providing another buying opportunity.
I have highlighted this manufacturer of non-lethal weapons and ammo many times over the years. It is one of the few holdings in my portfolio I feel personally good about. Anything that promotes and enables self-defense and does so in a non-lethal way, I find myself rooting for innately. More importantly, from an investing perspective, company management has done a commendable job in expanding its sales base and making the public more aware of its product line.
The stock is down approximately a quarter from recent highs. The catalyst for the drop was the conservative guidance leadership provided after posting second-quarter results just over two weeks ago that beat both top and bottom-line expectations. The shares declined even as a couple of analyst firms boosted their price targets on the stock following Q2 numbers being posted.
After doubling revenues in fiscal year 2024 and posting nearly 41% year-over-year sales growth in Q2 and 57% in Q1, leadership guided FY 2025 sales growth to be between 25% to 40%. Obviously, Byrna's sales have a much bigger base than they had a year or two ago, but I do see 25% to 40% annual sales growth not only this year but over the years ahead as achievable.
The company has recently launched its store within a store with its partner Sportsman’s Warehouse SPWH that should be a key growth driver in the coming years. Byrna also is now opening company-owned retail locations.
Byrna has become profitable and earnings growth in the years ahead should roughly track sales growth. The company has a debt free balance sheet and management has done a solid job of increasing manufacturing capacity. In addition, over 90% of the components in Byrna’s product line are made in the United States. This will insulate the company from new tariff policies.
Lastly, in the long term I believe Byrna’s fate is that it will be purchased by a traditional gun and ammo manufacturer as it would be a logical acquisition. Here is how I added to my exposure to BYRN on its recent dip:
Option Strategy
This is how one can initiate or add to a holding in BYRN with a covered call order. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the March $22.50 call strikes, fashion a covered call order with a net debit in the $17.40 to $17.60 a share range (net stock price - option premium).
This strategy provides downside protection of just over 25% with upside potential of about 28% if the stock trades down 5% over the option duration.
At the time of publication, Jensen was long BYRN.
