Black Rifle Coffee (NYSE:BRCC) stock is down more than 5% today after a prominent analyst downgraded the company’s stock.
BRCC stock has been a big gainer since the company went public in February 2022 via a reverse merger with a special purpose acquisition company (SPAC). In less than two months of trading, the company’s share price has risen 78% to close yesterday at $28.28 per share.
However, the stock has turned southward after investment bank Raymond James downgraded the shares, citing concerns about the big run up. Adding to pressure on BRCC stock is news that Black Rifle Coffee has redeemed all of its outstanding warrants, a move that dilutes the company’s share count.
What Happened With BRCC Stock
In a note to clients, Raymond James downgraded BRCC stock to “market perform” from “outperform” previously, and removed the $21 price target it had on the shares.
“Simply put, the shares have performed very well of late, having appreciated >50% in the past month (+29% on Monday alone) and so we believe a neutral stance is justified,” wrote Raymond James analyst Joseph Altobello in his assessment of the stock.
At the same time, Black Rifle Coffee announced that it is redeeming all of its outstanding warrants in a move that increases the company’s share count and dilutes the number of outstanding shares, which shareholders typically do not like as it waters down their investment.
Why It Matters
Black Rifle Coffee has been one of the more high-profile debuts so far this year and Wall Street has been watching closely to see how shares of the Salt Lake City, Utah-based coffee company perform.
Following a spectacular run, analysts now seem to feel that BRCC stock has gotten overheated and a pullback in the share price is likely justified. In its note, Raymond James said: “The shares are now trading at 12.5x our 2023E revenue estimate, or 0.29x its growth rate vs. the comp group average of 0.22x.”
At the same time, the redemption of outstanding warrants is likely angering current shareholders of BRCC stock who are now taking the opportunity to sell the stock and book profits. Founded and run by military veterans, Black Rifle Coffee largely sells its coffee and related products through the internet, forgoing traditional brick-and-mortar stores.
What’s Next for Black Rifle Coffee
BRCC stock is pulling back today. But investors should keep in mind that today’s decline follows a big run for the shares since they made their market debut a couple months ago.
Look for more analyst reports on Black Rifle Coffee stock in coming months, and expect that the company’s share price will stabilize at more reasonable levels.
On the date of publication, Joel Baglole 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.