Black Rifle Coffee Company Does Not Reflect the Prevailing Risks at Its Current Price

In today’s market, you will see very few growth stories. Therefore, the rapid ascent of Black Rifle Coffee Company (NYSE:BRCC), or BRC, deserves special mention. The coffee company debuted through a reverse merger with a special purpose acquisition company (SPAC). However, unlike most companies that take the SPAC route, BRCC stock did not fall back to earth after the reverse merger concluded.

Exterior of Black Rifle Coffee Company Store. BRCC stock.

Source: YuniqueB / Shutterstock

You can chalk that up to the fans of former President Donald Trump. He is all over the investing space at the moment, and despite leaving office, his presence looms large. Look no further than two SPAC deals in which he is the prime focus.

The first is the tie-up between Digital World Acquisition Corp. (NASDAQ:DWAC) and Trump Media and Technology Group (TMTG). The latter is behind the controversial Truth Social application, which aims to be an alternative to social media titans like Meta Platforms’ (NASDAQ:FB) Facebook and Twitter (NYSE:TWTR).

Meanwhile, Rumble is looking to debut via a merger with CF Acquisition Corp VI (NASDAQ:CFVI). The Canadian online video platform has recently generated a lot of noise because of its libertarian and right-leaning contributors. It most famously offered Joe Rogan $100 million to join its platform after he ran into trouble with Spotify (NYSE:SPOT).

These companies are catering to a right-leaning consumer base, and BRC is no different. However, while that may boost BRCC stock for now, it could also lead to controversies that push its price back down.

BRCC Stock Is Too Hot Right Now

Trump-related stocks have created a market niche. Retail investors seem to like them, so their momentum remains solid. However, they will have to lose steam and reflect their fundamental value in the long run.

Black Rifle Coffee is a veteran-owned small business focusing on community and quality. It gained national attention when it pledged to hire 10,000 veterans after Starbucks promised to hire 10,000 refugees over five years.

CEO Evan Hafer told The New York Times he has voted for Trump in the past. The company has positioned itself as pro-law enforcement. These are strong stances at a time when companies generally want to play it safe, or go with a more millennial-friendly marketing strategy.

However, the approach is working so far. BRC has delivered strong growth with a healthy and rapidly growing customer base. In 2019, revenue was $82 million, whereas 2020’s revenue doubled to $164 million. It estimated revenue of $230 million in 2021, a 40% increase year-over-year.

In addition, the reviews are solid, which means the company is doing one of the things every business needs to do to be successful in the long run: it has a great product.

What Are the Risks to BRCC Stock?

Although BRCC stock has a unique brand, companies that take strong social stances often attract a lot of controversies. Although they get a lot of notoriety, it can also hurt growth and restrict future partnerships. That can put a cap on overall growth.

BRC’s image can end up causing damage to its financial position. It’s tough to foresee the company changing stances, since that branding makes it unique.

When investing in a stock like BRCC, it’s important to remember there is always some degree of risk, regardless of whether the company has done well in quarterly results. That is not reflected in the company’s stock price, which is holding steady despite tremendous market pressures.

Oil prices are surging due to the Russian invasion of Ukraine. In addition, interest rates are also going up, which could hurt our economic expansion. Hence, there has been a selloff in growth stocks. If and when selling pressure increases, BRCC stock could be in big trouble.

It’s Time to Take Profits

BRCC stock has reached an all-time high in the past few months, and all signs point to an eventual fall. If you held onto these shares post-merger, it’s time to cash in your winnings.

Coffee is a popular beverage around the world. Nearly two-thirds of Americans consume it in some form or other, and coffee shops are everywhere. Even if the company gains a small slice of that market, it will lead to handsome gains for investors.

Sell BRCC stock before the stock reaches $10, then buy it back when it goes below that level.

On the publication date, Faizan Farooque did not have (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.


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