One look at the chart of New Age Beverages (NASDAQ:NBEV) stock over the past year, and it’s easy to see that this is a highly volatile stock. Over the course of the past year, NBEV stock has moved up or down 5% or more in a single day more times (79) than the S&P 500 has moved up or down 1% or more in a single day (55 times) — and that’s over the past year when the S&P 500 has been considered “extra turbulent”.
In other words, NBEV stock is very volatile — volatile enough that regardless of the fundamentals here, this isn’t a stock that deserves your lunch money.
With that said, the fundamentals underlying New Age Beverages are promising. In a not-that-unrealistic long term scenario wherein New Age Beverages capitalizes on its current growth initiatives, NBEV stock could be a $15 stock in five years. That represents four-fold upside from today’s prices.
Thus, NBEV stock is a potential multi-bagger. But as with any potential multi-bagger, there are big risks here — big enough risks to keep me sidelined for the time being.
As such, I think the investment implication with New Age Beverages stock is simple. Don’t count it out, but don’t count it in. Instead, if you can stomach it, take small bites here and see how the narrative progresses. Else, wait on the sidelines until more clarity arises as to where NBEV stock will head over the next several years.
Don’t Count New Age Beverages Stock Out
Although NBEV stock has history of being exceptionally volatile and trades in penny stock territory — which is usually reserved for stocks on their way to the graveyard — I don’t think investors should count out New Age Beverages just yet.
The core growth narrative here is that New Age Beverages is trying to be the world’s leading healthy beverage company. Through a series of acquisitions, New Age Beverages has amassed a respectable portfolio of healthy beverages, including Marley, Coco-Libre, Bucha Live Kombucha, Evian water, and Illy coffee.
Most of those brands are levered to the secular health awareness trend, which is driving higher sales across the whole beverage industry. It should be no surprise, then, that organic sales at New Age Beverages rose 7% year-over-year last quarter.
These secular health awareness trends should persist. So should healthy organic sales growth at New Age Beverages. Adding to the growth trajectory will CBD-infused beverage sales, as New Age is among one of the first non-alcoholic beverage companies to experiment with CBD drinks in the U.S. Healthy organic sales growth plus new CBD revenue should drive high single to low double digit revenue growth over the next few years.
Gross margins are moving higher because recent acquisitions have been for higher gross margin products. At the same time, high single to low double digit revenue growth should be enough to drive at least slightly positive operating leverage. In the event that it does, New Age should be able to reach around $0.75 in EPS by fiscal 2025.
Based on a consumer discretionary average 20-times forward multiple, that implies a 2024 price target for NBEV stock of $15 — more than four-fold the current price tag.
Don’t Count It In, Either
Although NBEV stock has multi-bagger potential in the long run, investors shouldn’t count on NBEV stock realizing that potential anytime soon, if ever.
The reality is that there are major risks which face New Age Beverages. In particular, the company does not have a robust track record of organic sales growth, and assuming that the company’s brands continue to gain in popularity may seem like an unnecessarily large leap of faith. Further, New Age Beverages isn’t profitable, nor has it ever been as a public company. The pathway to profitability at this point in time similarly lacks visibility because of how high the opex rate is (over 70% year-to-date).
Also of note on the risks side of things, CBD beverage upside — which is why this stock went parabolic back in late 2018 — is a wild card.
In other words, there’s reason to believe that — as opposed to growing sales and margins over the next several years and producing sizable profits at scale — New Age could potentially lose sales and margins over the next several years, and never produce a profit of any sort.
So long as a lack of clarity remains as to which way New Age Beverages will swing, NBEV stock will remain hampered by low long term visibility.
Bottom Line on NBEV Stock
When it comes to NBEV stock, don’t count this penny stock out yet, but don’t count it in, either. There is a pathway wherein NBEV stock turns into a multi-bagger over the next four to five years. But, that pathway lacks visibility and tangibility at the current moment. Consequently, the best course of investment action here is to monitor the situation, and wait for more long term growth visibility before buying into the stock.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
