- BRCC stock has fallen 34% in the last month following a strong market debut in February of this year.
- The company’s alignment with conservative values has caused a political backlash on both the right and left.
- Black Rifle Coffee’s first earnings report was underwhelming and has contributed to volatility in the share price.
Should investors be concerned about the slide in Black Rifle Coffee Company’s (NYSE:BRCC) stock?
After going public in February of this year via a reverse merger with a special purpose acquisition company (SPAC), BRCC stock rose 242% to a peak of $34 a share. But since cresting on April 8, Black Rifle’s stock has fallen 34% and now trade at $14.60 per share and inching towards its pre-IPO price of $10.
The dramatic rise and fall has no doubt left shareholders wondering if Black Rifle’s fortunes mirror the broader stock market or are a sign of problems within the Salt Lake City, Utah-based coffee company?
|BRCC||Black Rifle Coffee Company||$14.60|
The decline in BRCC stock is due to a few factors. One of which is that the company is having some difficulty with its brand identity. The company was founded by military veterans and has close links to the U.S. military and the conservative right in the U.S.
When rival Starbucks (NASDAQ:SBUX) announced that it would hire 10,000 refugees, Black Rifle Coffee responded by saying that it would hire and employ 10,000 military veterans. Black Rifle Coffee has also made several financial donations to veteran and first responder organizations over the years.
While its right-wing affiliation has served the company well over the years, the San Antonio, Texas-based organization faced a backlash after it was perceived to be backing away from extremist far right views. Critics have accused the coffee company of becoming “woke” after it denounced extremism in several media articles, including a piece in The New York Times newspaper.
The company’s chief executive officer, Evan Hafer, who is known online for his sense of humor and affable demeanor, has expressed frustration with the way Black Rifle Coffee’s brand has been politicized, saying, “These are people that are making very illogical, irrational statements about the company that are misleading.”
Apart from the fact that Black Rifle Coffee is being criticized on both the right and left of the political spectrum, the company also has other issues that it is grappling with. Black Rifle’s parent company, BRC Inc., reported its first financial results as a public entity in March, and the results were underwhelming.
Fourth-quarter 2021 revenue increased 20% to $71.8 million from $59.9 million a year earlier. But Black Rifle Coffee recorded a loss of $4.6 million compared with net income of $976,000 a year ago. Those earnings have contributed to the volatility and ultimate decline seen in BRCC stock over the past few months.
Another interesting aspect of Black Rifle Coffee, and potential issue, is the company’s business model. So far, Black Rifle has sidestepped the traditional retail network of coffee shops used by competitors such as Starbucks and Dunkin’ Donuts in favor of a direct-to-consumer coffee subscription service.
More than 100,000 subscribers pay a monthly fee to have Black Rifle’s coffee shipped to their home or office. To date, Black Rifle Coffee has only 16 retail coffee stores, including one in neighboring Canada. However, the company has announced plans to add between 15 and 20 new retail stores this year. Some analysts have questioned how much BRC can grow without a strong retail network.
The Bottom Line
While the decline in Black Rifle’s stock is disappointing, it is important for investors to remember that it is early days in Black Rifle Coffee’s life as a public company. Time is needed for Black Rifle Coffee Company to develop and execute its growth strategy and demonstrate reliable earnings and consistent profits.
The coffee concern may also have to spend a few dollars on public relations to help improve its brand image among both its core and casual customer base. That said, with weak earnings, a falling share price, and public backlash swirling around the company, BRCC stock is not a buy.
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.