Stone Fox Capital

About the Author Stone Fox Capital

Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: http://ibkram.com/stone-fox-capital Follow Mark on twitter: @stonefoxcapital

Cannabis Stock New Age Beverages (NBEV) Is Not a One-Trick Pony


New Age Beverages (NBEV) stock skyrocketed nearly 40% in Monday’s trading session as the CBD drink maker signed a major distribution deal with the largest retailer in the world.  The deal shows that New Age has growth potential with or without CBD-infused beverages that skyrocketed the stock to $10 last year. A unique opportunity exists to own the stock in the $5 range.

Regional To National

For the most part, New Age was mostly a regional player lacking the capital for a national or even global rollout of the portfolio of beverages. The company has an interesting mix of drinks that include yerba mate teas like Marley, natural green tea like Xing and organic live kombucha tea like Bucha along with coconut water like Coco-Libre. Until last year, the company lacked the capital and infrastructure for a national expansion leading to weak results.

The closing of the Morinda deal made New Age a global company with a revenue base in excess of $300 million. Along the way, the company added capital providing a cash cushion in the $50 million range along with a new credit facility.

The end result is that New Age landed a national account deal with Walmart for the Marley brand. The Marley mate drink should start hitting Walmart shelves here in early April.

The deal could be just the start of a national expansion plan that could include additional retailers along with morel products at existing retailers like Walmart. The largest retailer alone has 11,300 stores and does over $500 billion in annual sales.

More Capital

In all regards, New Age is a very small beverage company. The core domestic business generated less than $60 million in gross revenues last year.

The Marley, Bucha and Xing brands were already generating strong revenue growth, but the lack of capital last year caused New Age to miss targets. The company forecast some $20 to $30 million in revenue growth this year generally from these brands when accounting for the acquired business from Morinda that placed the revenue run rate in the $300 million range.

The company already had a placeholder for an additional $30 million in CBD-infused beverage sales that could boost the revenue target above the $320 million forecast. This Walmart deal should provide another big boost for a stock with only a $360 million market cap before this announcement sent the stock soaring.

The one warning here is that New Age constantly over hypes growth expectations having missed analyst estimates every quarter in 2018. The product is shipping to Walmart distribution locations in April so the sales numbers won’t be included in earnings results until the Q2 report that wasn’t released until mid-August last year.

Takeaway

The key investor takeaway is that the stock is highly volatile and probably shouldn’t have traded below $5. New Age has a viable business beyond the CBD drinks in the works so investors shouldn’t get too down on the stock or over hyped on the CDB potential.

Regardless, New Age Beverages makes for an interesting high risk/high return in the health and wellness space combined with a cannabis play. The irony is that the stock doesn’t trade at the high multiples of sales similar to other cannabis stocks. If the company beats revenue targets, the stock will trade much higher.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

 

Disclosure: The author has no position in NBEV. 

Read more: A New Dawn for Cannabis Stock New Age Beverages (NBEV)