InvestorPlace contributor Mark Hake recently gave a scathing review of New Age Beverages (NASDAQ:NBEV), suggesting that now was the time to sell NBEV stock.
Here’s my take on why things aren’t nearly as bad at the Colorado-based maker of healthy beverages.
So far in 2019, Willis has sold NBEV stock on seven occasions: April 5, April 9, June 17, July 15, August 15, September 16, and October 15. In total, Willis has sold 425,000 shares this year at prices between $2.73 in October and $5.97 in April. Assuming an average sale price of $3.75, Willis netted $1.6 million before tax.
In August, Willis was granted 213,815 stock options to buy NBEV stock at $3.04 a share any time before August 29, 2029. Those are currently underwater, so you can be sure he won’t be exercising those anytime soon.
Willis held 1,479,367 shares as of his latest disposition in October.
Willis was paid a total of $887,500 over the 24–month period covering 2017 and 2018, with absolutely no stock or option awards, so the fact that he sold some of his stock received when he first joined the company in 2016, seems perfectly reasonable.
FYI, Willis got a sign-on bonus in 2016 of 771,783 shares and another bonus of 1,078,763 shares for executing the acquisition of Xing. Except for the 213,815 in stock options granted in August, he’s received no other stock-based compensation.
People sell a stock for all kinds of reasons. Willis has set in place a trading plan to generate regular income for him and his family above his salary and bonus.
I would hardly classify these sales as someone looking to cash out before the ship goes down.
The Cash Isn’t Half Bad
My colleague is correct to point out that New Age is indeed running at a cash flow deficit in the latest quarter ($20.9 million through the nine months ended September 30), up from $13.3 million in the same period a year earlier.
However, I would hardly characterize this as hemorrhaging cash.
Yes, it only has a market value of $154 million. Still, it did generate an adjusted EBITDA profit of $37,000 in the third quarter, a significant improvement from a $2.6 million loss a year earlier.
As for claims that NBEV isn’t able to finance its growth through the issuance of shares — it issued $43.9 million in stock in 2018 and $13.5 million in 2019 — if the cannabis companies can do it, and many of them have significantly worse financial pictures than New Age, I don’t see why it won’t can’t do the same.
My colleague’s also right to point out that the $35,873 addition to New Age’s cash position as a result of Morinda doing a sale-leaseback on its Tokyo headquarters, is not something that’s going to happen in the future.
However, subtract that amount from its cash at the end of September, and you still get cash, cash equivalents, and restricted cash of $36,157, 26% higher than a year earlier.
As for debt, including its operating lease liabilities, it had $65.1 million at the end of September, a little more than 20% of the company’s stated asset values.
The company’s cash position has weakened, but it’s come as a result of its expansion plans, which have yet to be proven a winning or losing hand.
The Bottom Line on NBEV Stock
In June, I complimented New Age’s CEO for pulling the trigger on a deal that most likely went under the radar; it acquired New York beverage distributor Brands Within Reach for $6.4 million. The move helped improve the company’s distribution network.
At the time, the shares Brands Within Reach received were worth $4.85 a share. Since then, they’ve been cut by more than half. Shareholders of Brands Within Reach, as much as anyone, would like to see a turnaround in NBEV stock.
“The best acquisitions are often the ones that almost weren’t made. This latest acquisition cost less than 2% of the market cap of NBEV stock. Most investors probably didn’t hear about the deal,” I wrote June 6.
As I stated in June, only speculative and aggressive investors should own NBEV stock until the company generates a consistent profit or one of its products takes off.
That said, I don’t believe the company’s financial situation is nearly as dire as some might think.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.