Today the most popular companies in which to invest utilize relatively new technologies. From internet messaging to smartphones to self-driving software to search engines to cryptocurrencies, high tech dominates the financial media and most investors’ minds. But the stocks of “old-tech” companies can still occasionally generate great returns. I think that Vita Coco (NASDAQ:COCO) stock will prove to be in the latter category.
Vita Coco develops and markets coconut water-based beverages. Judging from both macro and micro trends, I think that the company is positioned to be very successful in both the short-term and the long-term.
Strong Macro Trends
According to The Food Institute, “Coconut water… is the clear liquid inside a young coconut and is a low-sugar beverage when compared to other fruit juices. It also naturally contains essential vitamins and minerals, such as potassium, calcium, magnesium, and vitamin C.”
Vita Coco’s products all appear to contain little added sugar, along with significant amounts of multiple vitamins. For example, a full container of its original coconut water beverage includes 4% of the recommended daily allowance of added sugars, 20% of potassium, 80% of vitamin C and 8% of magnesium. It also includes a relatively low 90 calories.
Moreover, WebMD published an overwhelmingly upbeat assessment of coconut water:
There are some health benefits to drinking coconut water. It’s an all-natural way to hydrate, cut sodium, and add potassium to diets. Most Americans don’t get enough potassium because they don’t eat enough fruits, vegetables, or dairy, so coconut water can help fill in the nutritional gaps.
And research firm TechNavio expects the U.S. coconut water market to increase at a compound annual growth rate of 22% through 2025.
Strong Micro Trends
In the third quarter, Vita Coco’s revenue jumped nearly 33% from a year ago to almost $116 million. Its Q3 earnings per share came in at 24 cents, and its income from operations soared nearly 73% to $17.8 million.
In the first nine months of 2021, Vita Coco’s top line surged 21.5% to almost $293 million, and its income from operations climbed 10.5% to nearly $30 million.
“Our net sales growth was accomplished even with continued inventory constraints on some SKUs related to availability of ocean containers at acceptable prices and increased transit times,” co-CEO Martin Roper said. He added that the beverage maker’s cost of goods sold was also pushed higher by elevated shipping costs. But over the longer term, as supply chain pressures ease, the company’s overall profitability should climb meaningfully.
Also on the micro front, the company’s launch of relatively healthy energy drinks is quite positive. According to Vita Coco, the beverages include “40mg of caffeine from tea, B vitamins, and coconut MCTs that fuel your body and mind.” Although its chocolate Coco Boosted drink includes 40% of the RDA of saturated fat, it only contains 130 calories and 4% of the RDA of carbs per container, along with zero grams of added sugars, 8 grams of total sugar, and 25% of the recommended daily allowance of vitamin B6. The other available flavors have similar stats.
Conversely, a can of Red Bull has 27 grams of sugar, although it has 250% of the recommended daily allowance of Vitamin B6. A can of Mountain Dew has a whopping 46 grams of sugar and 170 calories. Finally, a 591-milliliter bottle of Gatorade has 34 grams of sugar and 140 calories.
Given the stats, I think it’s clear that Vita Coco’s new energy drinks are healthier than the two most popular alternatives.
The Bottom Line on COCO Stock
I believe that Vita Coco could easily generate earnings per share of $1.50 next year as its energy drinks become more popular and its supply pressures ease. Even after the stock’s recent surge, the shares would, based on my estimate, be trading at a price-earnings ratio of just 12.
That’s a very appetizing valuation for a company that’s growing rapidly and has meaningful, positive catalysts, even if its products are low tech in nature.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
