Some people think that a stock market crash is a great time to purchase stock. But there are risks involved in buying during difficult times. Global stocks are under pressure due to geopolitical issues. Tensions remained high as politicians in the west continued to fear an imminent war in Eastern Europe. Amid this environment, Black Rifle Coffee (NYSE:BRCC) becomes a risky proposition, despite an excellent operating model. And top of that, BRCC stock has done amazingly since its debut.
The Black Rifle Coffee Company has become more than just a coffee shop. It’s an institution that creates jobs and revitalizes communities. After quitting service, veterans may have difficulty finding work in their hometowns. Army and Navy staff sergeants are encouraged to pursue a career at one of their stores or offices, providing for their family while they’re home in the community.
In November, the company announced its debuting in a $1.7 billion special purpose acquisition company (SPAC) deal. SPACs don’t have operations but act as holding companies for other, real companies. They became a really popular alternative to traditional initial public offering (IPOs) as debuting on public markets is quicker through this method.
SPAC is also great for businesses seeking fast growth and one way to access capital without relying on intermediaries. It’s quick and easy, which is perfect for companies like Black Rifle Coffee looking for an opportunity to expand their business.
Overall, BRCC stock enjoyed a strong debut — its share price jumped 50%. However, the success of SPAC’s merger-based returns has been questionable, with many investors noting that they have not seen promised increases after the company acquired other businesses. Even though the company has a great operating model, the time is not right to invest in BRCC stock.
Interesting Story Sets BRCC Stock Apart
Evan Hafer, the founder, and CEO at BRCC, says that he founded the company to give back to those who put their lives on the line for America.
Black Rifle Coffee Company sells out of its location in Tennessee and ships nationwide through the Black Rifle Club club membership program as a small-batch coffee company. They feel that veterans have served our country enough. They want to make the workplace as welcoming as possible with a supportive environment for those looking to get back into society after service.
The best part about BRCC is its low prices and monthly membership. For just $25, you can enjoy a whole month’s worth of coffee. The “Freedom Fuel Coffee Roast,” the ‘Liberty roast,’ or even some freshly ground espressos are all available in one place at an affordable rate of about $15 for a 12 oz bag. They also provide a growing wholesale business, a canned ready-to-drink product, and an ever-growing base of coffee bars around the country.
Due to its unique brand, things are progressing in the right direction for the company. It predicts 2021 will be 40% more lucrative than 2020. The company is projected to have even higher profits in the next year, with gross margins at 40%. By 2022 they’re expecting revenue numbers reaching $311 million and a 41% margin on those sales. This trend continues into 2023 when looking forward — Black Rifle estimates that there will be around half a billion dollars worth of business coming through its doors.
Trump Looms Large over the Coffeehouse’s Public Image
While many factors lead to an increasing disconnect between Corporate America and the Republican Party, anecdotal evidence suggests President Donald Trump’s election led to a greater public distance. In addition, young people are more liberal than older generations, and companies know this. As a result, the marketplace has become saturated with products tailored for young consumers who want to support causes that align with them ideologically.
However, a larger discussion emerges that companies can tap a large market of conservatives. This is because they are conservative in their political views and their values. This means a company should understand these values and how they relate to the product or service they offer and then speak to them accordingly. If they do so, it can make a lot of money. Look no further than Salem Media Group (NASDAQ:SALM) as an example.
CEO Evan Hafer voted for Trump. Since the Trump campaign, he has not taken a political stance, and BRCC’s company is not affiliated with any party or campaign.
However, things took a turn for the worse during the Jan. 6 insurrection at the United States Capitol. A photo circulated of someone brandishing zip-tie handcuffs together with a BRCC hat.
But Trump is no longer president, and Hafer is hesitant to say anything positive about him anymore. Hafer said, “I hate racist, Proud Boy-ish people. Like, I’ll pay them to leave my customer base” in a revealing interview with the New York Times. That statement alone underlines an understanding that too controversial a brand image can cost the company quite heavily.
Starbucks vs. Black Rifle Coffee
Black Rifle presents itself as a lifestyle brand with its apparel and hats comprising over 15% of 2020 sales. In 2015, a company’s revenue was just one million dollars. The company has seen incredible growth in revenue over the past few years, with last year’s sales reaching $163 million.
The company isn’t trying to become Starbucks (NASDAQ:SBUX), but it could still be a formidable force among conservatives. It’s not afraid to pick a fight with its more successful rival.
When Starbucks announced that it would be hiring 10,000 refugees in 2017, Hafer responded by announcing its plan to hire an equal number of veteran employees.
Predictably, the company was not able to fulfill this promise. However, Black Rifle has grown significantly over time and staying true to its values. The company’s employees are a diverse group of individuals. Whether you’re an active-duty military veteran or reservist, they have something that could fit your needs and interests with this job. They work in a wide variety of job roles like operators, baristas, and executives.
In contrast, In the 1990s, Starbucks became an iconic brand in America by creating a version of Seattle’s culture accessible and aspirational. They have continued to evolve the business while staying true to tradition and quality. Not all of their associations have disappeared, though. The brand’s overall aesthetic was subtly liberal, urban, cosmopolitan, and subtly pretentious.
However, Starbucks’ preference for liberal causes, Black Rifle quietly positions itself as an alternate brand for conservatives. The company’s values are pro-military and “anti-hipster,” making it more appealing to conservatives. This is a smart marketing move by Black Rifle Coffee Company because they’re tapping into an important market segment that shares their views on society and politics.
The Bottom Line
Black Rifle Coffee has shown significant growth by developing a strong brand and marketing strategy in the last few years. That makes BRCC stock an interesting prospect. However, it is still a volatile time for the company. It’s not uncommon for a reverse merger to cause the stock price to remain high for a while. Therefore, take it easy on BRCC stock for now.
In the longer run, BRCC can become a strong brand in the coffee market. With their unique approach to marketing and branding, they can make a lasting impact. Politics aside, the growth and profitability metrics are enough for anyone to initiate a small position.
However, there is one aspect to keep an eye on. The coffee business is not bothered by the negative headlines because they have been doing well for a long time. They have been expanding to new markets and developing new products in demand. But their attitude could become an issue moving forward. They do not want a PR nightmare on their hands moving forward as they consolidate and grow.
On the publication date, Faizan Farooque did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.