Could This Small-Cap Beverage Stock Be The Next Big Winner?
About three weeks ago, I wrote that my Maximum Profit system will sometimes deliver picks from the unlikeliest of places.
In that case, the pick in question was a small-cap company (market capitalization under $1.5 billion). And our system has been on a roll since then, spitting out three more small-cap companies in a row.
Today, I want to tell you about one of them.
Let’s take a look…
Big Gains Can Come From This Corner Of The Market…
I want to start off my clearing the air and telling you that this company makes coconut water.
You heard that right.
When coconut water came out, there was massive hype behind it. Little did I know that hype would turn into a market worth nearly $6 billion last year and projected to reach $23 billion by 2032.
And before I go any further, let me remind you of something…
If you’re like me, you might wonder just how much upside a little company peddling coconut water can offer us. After all, isn’t coconut water just a fad?
Well, let me show you another beverage company that many thought was a fad… Monster Beverage Company (Nasdaq: MNST).
Over the last 20 years, Monster Beverage has delivered an astonishing 131,000% return. That’s not a typo. 130,000%. The S&P 500’s return over the same period? 345%.
Of course, we aren’t going to hold this pick for 20 years, or probably not even 20 months. But the point is that there are massive gains to be had in companies that sell basic drinks.
Still with me? Okay, now let’s get to the pick…
A Beverage Company With Big-Time Momentum
One of the main players in the coconut water space is Vita Coco Company (Nasdaq: COCO), a $1.3 billion company.
Vita Coco was founded in 2004 by two childhood friends, Michael Kirban and Ira Liran, inspired by the coconut water they drank while on vacation in Brazil. Today, Vita Coco is one of the largest coconut water brands in the world, with products sold in over 30 countries.
I should mention it also offers coconut oils and lotions and has tapped into the growing sparkling water segment as well. But the company’s mission is simple: offer an alternative to traditional sports drinks and other beverages, as coconut water is low in calories and high in electrolytes.
Vita Coco has experienced rapid growth in recent years, with revenues increasing from $4 million in 2009 to over $427 million in 2022. However, the company has only been public since October 2021.
Much of the company’s growth has been achieved through a combination of strategic partnerships and innovative marketing campaigns.
For instance, one of Vita Coco’s key partnerships is with the music industry, where the company has sponsored several major music festivals and events. The company also partnered with several professional sports teams and athletes, including the New York Yankees and Serena Williams, to promote its products.
As mentioned, Vita Coco did $427 million in revenue last year, a 13% increase over the prior year. Net income was $7.8 million, down from $19 million the year before, but is expected to be near $40 million this year.
When the company reported its first quarter results, sales continued to grow at a double-digit clip. Net income grew 200%, and our favorite metric — cash flow — checked in at $9.4 million. That was a major improvement over the $22 million loss it showed the year prior.
Estimates have the company generating $47.4 million in cash flow this year.
Management keeps a clean balance sheet as well. At the end of the first quarter, it reported $29 million in cash and virtually zero debt.
What The Chart Says…
The company IPO’d at a rough time in the market (October 2021). Shares got off to a poor start as the market tanked in 2022. But once finding a bottom in November last year, they haven’t looked back.
They are now hitting new all-time highs.
Of course consumers are a fickle bunch. And if they decide that there’s a newer, better kid on the block, they won’t hesitate to jump ship. Also, a major economic slowdown could curb consumers’ appetite to buy discretionary items like coconut water.
That said, s more consumers seek healthier beverage options, Vita Coco is well-positioned to continue its growth trajectory. And now looks like a good time to hop on board.
The stock is showing some amazing momentum and cranks out solid cash flow.
Consider COCO if you’re looking for a smaller stock with good upside (I recommend using a 15% trailing stop loss.)
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