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Wait for Black Rifle Coffee to Cool Before Buying This Innovative Play


Black Rifle Coffee (NYSE:BRCC), otherwise known as BRC, is a well-recognized brand and has been in the coffee business for a long time. However, much like other unprofitable companies at the moment, investors are buying safer picks instead of BRCC stock.

Exterior of Black Rifle Coffee Company Store. BRCC stock.

Source: YuniqueB / Shutterstock

On top of this, BRC has reported a fourth-quarter loss of $4.6 million compared to a profit of $976,000 in the year-ago period.

The coffee industry is growing at a rapid pace. With this comes more opportunities for coffee lovers, professionals and investors as this market grows in size and complexity.

Black Rifle has managed to create a unique brand focused on a politically conservative customer base. For example, in 2017, Starbucks (NASDAQ:SBUX) pledged to hire 10,000 refugees over five years in 2017. BRC CEO Evan Hafer pledged to hire an equivalent number of veterans in response. That has not come to pass, but the company is growing rapidly and is still working toward this goal.

Overall, Starbucks has become more and more popular over the years. And while the coffee giant’s stock is more expensive than other stocks, you can still partake in this booming business.

However, BRCC stock is still relatively cheap in comparison. Therefore, if you want to build a position in a growing coffee brand, this should be right up your alley.

Putting Q4 Numbers Into Context

There were both positive and negative things to note in the latest numbers reported by Black Rifle Coffee. The quarterly loss will undoubtedly concern many investors since the company was in the black last year. It cited inflation as one of the main reasons for its disappointing results.

Another factor for investors to consider is the narrowing gross margin. The metric tightened from 40% to 34.3% because its wholesale channel forms a large part of the product mix. As a result, margins are coming under pressure.

On the bright side, the top line grew by 19.9% from $59.9 million in Q4 2020 to $71.8 million in Q4 2021. One of the main reasons for the increase in revenue is that direct-to-consumer (DTC) subscriptions ended the year at 287,300, up 14% from 2020.

The outlook for the company is bright. It expects revenue of $315 million for fiscal 2022 and it plans to open 15 to 20 new stores.

The company certainly stumbled near the end of 2021, but for understandable reasons. The only area investors need to keep an eye on is the gross margin. If the product mix is skewed toward low-margin segments, the company’s results will remain under pressure.

Sacrificing Growth for the Brand

The coffee industry is growing, with more people turning to the beverage for a quick pick-me-up. It is seeing a significant increase in customer demand across all demographics.

Conservatives are a huge consumer base that companies can market to. However, to maintain the brand, BRC might encounter certain issues.

Generally, corporations try to appease younger consumers with its branding and strategy. That does not mean these companies do not want the additional business from conservatives. Businesses know they need to take stances that appeal to younger demographics to stay on top — and this age group is generally more liberal.

BRC is trying to chart its path. If it creates a niche for itself, there is every chance it can become a successful business. The coffee industry is huge, and even if BRC manages to get a small slice of the market, the company will do well. However, it might need to tweaks its stances slightly to appeal to a broader base.

BRCC Stock Is Interesting if It Falls Further

BRCC stock has done well despite reporting a quarterly loss. Therefore, it looks pricey at current rates. However, if it cools, there are positives here worth considering.

For one thing, if you aren’t Dunkin’ Donuts or Starbucks, it’s tough to carve your niche in the coffee market. Black Rifle’s branding not only helps it stand out, but is also appealing to a significant group of consumers. If it manages to improve margins in the forthcoming quarters, it will see an influx of interest from investors.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2022/03/wait-for-brcc-stock-to-cool-before-buying-this-innovative-play/.

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