Shares of New Age Beverages (NASDAQ:NBEV) had their second best day of 2019 on Tuesday, on news that the organic and CBD products company won approval to launch its new CBD products in Japan. NBEV stock closed the day up nearly 18%.
That should catch your eye. An 18% move in a day isn’t too common. But, this tidbit should catch your eye even more: this may just be beginning, and in the long run, NBEV stock could be a multi-bagger.
That’s right. New Age Beverages — a stock that has been stuck in a secular decline for the past 12 months — could end up rising by three-, four-, or even five-fold from current levels. To be sure, this bull thesis comes with huge risks. Those huge risks mean New Ages Beverages isn’t for the faint of heart.
But, for those who can stomach the risk and are willing to take on the volatility, NBEV stock is worth a look, at the least. The stock may not work out in the long run. But, there is a pathway here for 400%-plus returns, and the risk-reward skews favorably at current levels.
Behind the NBEV Bull Thesis
There are four components to the multi-bagger bull thesis on NBEV stock.
One, the company has the perfect beverage product portfolio at the current moment, levered to all the right trends and positioned for big growth over the next few years. New Age’s beverage portfolio includes Marley (natural, organic cold brew and energy drinks), Xing (all natural tea), Bucha (kombucha drinks), and CocoLibre (coconut water). All of those beverages are levered to secular health and wellness trends that are powering rapid adoption uptake.
Indeed, while the global beverage market projects as just a 3% growth market over the next several years, the cold brew, kombucha, and coconut water markets all project to grow at a 15%-plus pace, while the herbal tea and energy drink markets project to grow at a 5%-plus pace.
Two, New Age Beverage’s relevant product portfolio is finally getting national attention and distribution. The drinks maker just landed major distribution contracts with Circle K, 7-Eleven and Walmart (NYSE:WMT). The Circle K roll-out has gone really well, and is powering multi-quarter best organic sales growth. The 7-Eleven and Walmart roll-outs have been choppy from a distribution standpoint. But, these early going distribution hiccups are being fixed. Once they do, Walmart and 7-Eleven should provide a meaningful sales lift in 2020 and 2021.
Three, New Age Beverages has a wildcard CBD catalyst which could provide huge upside in the long run. New Age just won approval to sell CBD products in Japan, making them the first company to win such approval. Right now, CBD isn’t producing meaningful revenue. But, if things play out as hoped here, CBD-related products could turn into a huge revenue opportunity for New Age Beverages.
Four, NBEV stock isn’t priced for any of the growth that could materialize over the next few years. All things considered, New Age Beverages easily projects as a high single-digit to low double-digit revenue growth company over the next several years. That should be enough growth to drive positive operating leverage, while gross margins should trend higher because higher gross margin products are what’s driving top-line growth.
In the event that revenues and profits march higher in lockstep over the next few years, New Age should be able to reach around 75 cents 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.
Why It Might Not Work Out
NBEV stock could be a multi-bagger in the long run. Then again, it could also end up a penny stock for the rest of its life on Wall Street.
Why? There are major risks to the multi-bagger bull thesis here. First, and foremost, the beverage market is a very tough one, with fickle demand and very little customer loyalty. New Age’s beverage portfolio has huge upside potential given its composition. But, the drinks may not stand out in the crowded functional drink market. If they don’t stand out, New Age Beverages won’t grow. If the company doesn’t grow, NBEV stock won’t go parabolic.
Second, the Walmart and 7-Eleven distribution deals could remain choppy for a lot longer. Management is blaming early choppiness on execution and distribution issues. Those issues could hang around, considering New Age isn’t a super high priority for Walmart or 7-Eleven. So long as these issues do hang around, revenue growth will likely be muted. Muted growth won’t power multi-bag returns in NBEV stock.
Third, some CBD upside is clearly priced into the stock. Shares rose 18% in response to the Japan approval. As we’ve seen with the major pot stocks — Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), and Cronos Group (NASDAQ:CRON), to name a few — nothing is certain in this world. As such, the stock hanging its hat on CBD upside is a risky situation.
Fourth, New Age Beverages isn’t profitable today. They don’t project to be profitable this year. Street estimates call for them to remain unprofitable next year, and the year after that, too. Thus, unless this company does drive meaningfully large revenue growth and margin expansion over the next several years, 2025 EPS could actually be negative. If 2025 EPS is negative, it is unlikely NBEV stock fetches a price tag in 2024/25 much higher than today’s price tag.
Bottom Line on NBEV Stock
New Age Beverages stock has some major risks. But, there is a visible pathway here for NBEV stock to increase by 400% over the next five years.
As such, the best way to look at NBEV stock is as a high-risk, high-reward investment, where the risk-reward profile skews to the upside. Given that, risk adverse investors should stay away. But, for risk-on investors, NBEV stock could make for an interesting choice.
As of this writing, Luke Lango was long CGC.