Shares of BRC Inc (NYSE:BRCC) better known as Black Rifle Coffee, are up 14% in 2022. However, BRCC stock is down 13% from its 52-week high set in February. One reason being bantered about is that the company was a beneficiary of the “Trump stock” bubble. And as that bubble bursts, so too does the company’s stock price.
Who knew that a cup of coffee could be so polarizing? I’ve never sampled Black Rifle Coffee, but I wouldn’t allow its political leanings to prevent that from happening. I feel the same way about Starbucks (NASDAQ:SBUX), Dunkin’ Brands or Maxwell House. I drink them all.
That may be the larger issue for Black Rifle Company. There’s a lot of competition and I’m not sure if a point of view alone will be enough to drive the kind of sales growth the company will need.
Branding Can Only Go So Far
It’s an urban myth that Warren Buffett drinks five cans of Coca-Cola (NYSE:KO) in a day because he owns the stock. That may be part of the reason. However, it’s also true that Buffett was a die-hard Pepsi (NASDAQ:PEP) drinker for 50 years. And it’s a documented fact that the legendary billionaire has quirky, and entrenched eating habits.
In any event, the notion that one individual could buy enough product to significantly influence the stock price is not supported by historical trends. But, when it comes to niche products, it can be a little deceiving. As it relates to Black Rifle coffee, the company appears to be building a loyal following.
Earlier this month, Mark Hake challenged the company’s valuation. Hake had many reasons, all of which are perfectly valid. However, in fairness, he did express skepticism at the company hitting $230 million in quarterly sales that the company had forecast. And yet, on March 16, the company reported $233 million on the top line.
Score one for managing expectations. But now the company will have to prove that it can do that over the next several quarters. It just might.
On page 24 of the company’s most recent investor presentation, it cites churn rates of just 3%-4%. That’s far below the 10% average of many consumer goods companies. And it’s on par with Netflix (NASDAQ:NFLX). It’s fair to say that coffee pairs well with binge watching. However, the larger takeaway is that BRC has a strong base of recurring revenue. And the company projects that 40% of its 2021E revenue is projected to come from its subscription service.
Should You Buy Into the Message?
One of BRC’s biggest marketing strengths is its unabashed dedication to military veterans and first responders.
Its clear BRC’s message is well received among its fanbase, and sometimes loyalty is an intangible you can’t always calculate in traditional valuation methods. This is pretty clear in its low churn rate.
Of course, we may be forgetting that this is a company based around premium coffee. But these days, whether you enjoy their gun-toting bravado or not, we are a nation that is craving authenticity. If Black Rifle continues to deliver on its mission of assisting veterans and first responders, it’s likely to keep its base intact.
Maintain Your Discipline With BRCC Stock
After all the marketing is over, Black Rifle Coffee is a consumer product in a competitive niche. If you’re interested in buying the stock, you need to believe in the company’s ability to deliver on its bold expansion plans.
Its most recent quarterly earnings report was the first indication that it’s making inroads to doing just that. But offering a premium priced product at a time when many consumers are feeling the pinch of inflation is a bold strategy.
Since the company released its earnings report, BRCC stock is starting to get coverage by analysts. Early indications give the stock a $19.67 price target. That’s about a 10% upside. If you’re currently holding the stock, that may be a good place to lock in some profits.
On the date of publication, Chris Markoch 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.
