Quenching Investor Thirst: Vita Coco’s Spectacular Progress (NASDAQ:COCO)

The Vita Coco Firm, Inc. (NASDAQ:COCO) has confirmed to be a rewarding funding since its 2021 IPO, offering a formidable return of 81.04%. The corporate’s efficiency has been constant, exceeding EPS expectations for six consecutive quarters and demonstrating a gentle progress in its prime line. The administration’s upward revision of its FY 2023 steering signifies a robust future, with the corporate projected to triple its EPS. Whereas the ahead P/E ratio of 31.13 and a excessive quick curiosity of 15% would possibly increase eyebrows, it’s essential to contemplate Vita Coco’s strategic deal with the coconut water market. This sector is rising quicker than others as a result of its value resilience, and Vita Coco has efficiently maintained a number one place. The corporate is anticipating a robust FY2023 and is focusing on a market that’s anticipated to develop at a CAGR of 10.77%, reaching $4.73 billion by 2029. Subsequently, for traders looking for a long-term alternative, Vita Coco presents a compelling case for consideration.

Firm overview

Vita Coco could also be a smaller contender within the beverage business with a market cap of $1.39 billion, nevertheless it has carved out a distinct segment for itself. In 2004, it launched the primary line of pure coconut water to the U.S. market, forward of beverage giants PepsiCo (PEP) and Coca-Cola (KO). Nearly all of its income continues to be derived from its branded coconut water merchandise. Nonetheless, it has diversified its product line by means of acquisitions, including Runa, Ever & Ever, and PWR LIFT to its portfolio, which fall underneath the ‘Different’ class. It additionally presents a personal label that features coconut water and oil. Whereas the ‘Different’ class is experiencing a YoY gross sales decline throughout its Americas and Worldwide segments, which is a secondary precedence for the enterprise at this time limit.

The coconut water class has demonstrated resilience, outperforming different beverage classes, and displaying much less sensitivity to pricing fluctuations. Inside this class, Vita Coco’s water continues to develop at an above-average fee. That is additionally the place the corporate is concentrated on progress by means of improvements and multipacks.

The corporate’s prime line has been on a gentle upward trajectory, rising at a 3-year CAGR of 14.64%. Regardless of a dip in its EPS to $0.23 in FY2022, the corporate’s EPS is projected to triple, probably reaching $0.79 per share in FY 2023.

Vita Coco anticipates sustained progress in its core merchandise and sees vital progress alternatives inside its newer investments. In Q3, the corporate raised its FY 2023 steering for Adjusted EBITDA from $56-$60 million to $64-67 million. It additionally tasks a gross sales progress of 13%-15% YoY, up from the earlier estimate of 10%-12%. This upward revision alerts the corporate’s confidence in its progress and potential upside.

Monetary overview

Since its preliminary public providing, Vita Coco has demonstrated strong efficiency regardless of its comparatively quick monetary historical past. The corporate’s prime line has proven constant progress yr after yr, and it’s on observe to mark its fifth consecutive yr of progress in FY2023, with a projected improve of 13% to fifteen% YoY.

The corporate’s internet revenue has seen a major uptick from FY2022 to TTM, at present standing at $37 million. This upward pattern in internet revenue underscores the corporate’s sturdy monetary well being.

Vita Coco has persistently outperformed its quarterly EPS expectations for the previous six quarters. This constant efficiency instills confidence within the firm’s capability to ship sturdy ends in the ultimate quarter of FY2023.

A have a look at the corporate’s Levered Free Money Move reveals a optimistic TTM of $68.8 million, a considerable improve from the earlier two fiscal years. This optimistic money circulate permits the corporate to reinvest within the enterprise, repay money owed, and supply returns to traders. Whereas the corporate doesn’t at present have a dividend program, it has introduced a $40 million share repurchase program, additional enhancing its enchantment to traders.

Lastly, Vita Coco maintains a wholesome stability sheet, with whole money reserves amounting to $94.89 million. The corporate’s present ratio of three.34 and a fast ratio of two.36 point out adequate liquidity, additional strengthening its monetary place.

Valuation

Since its debut on the inventory market in 2021, Vita Coco has been making its mark within the beverage business. The corporate’s worth has surged by a formidable 81.04% since its IPO, a testomony to its strong enterprise mannequin and robust market presence. The CEO proudly introduced that Vita Coco ranks because the seventh best-performing IPO since 2021. Regardless of outperforming the S&P 500 index over the previous yr, Vita Coco’s inventory continues to be buying and selling beneath its common value goal of $30.50. This implies a possible upside for traders seeking to capitalise on the corporate’s progress trajectory. Wall Avenue analysts appear to agree, giving the inventory a 4.33 Purchase score. Nonetheless, it’s value noting that the inventory has a excessive quick curiosity of 15%, which may point out some adverse market sentiment.

When in comparison with friends available in the market – Monster (MNST), Zevia (ZVIA), The Coca-Cola Firm, and PepsiCo – Vita Coco’s price-to-earnings ratio of 31.13 is on the upper facet. That is considerably above the buyer staples median of 17.93, which could increase some eyebrows. However right here’s the place it will get attention-grabbing. One of many main sights of Vita Coco’s inventory is its progress fee. The corporate’s PEG TTM is far decrease at 0.09 in comparison with its friends. This means that the inventory is probably undervalued, making it a compelling possibility for growth-oriented traders.

Dangers

Investing in Vita Coco comes with a number of dangers that traders ought to take into account. The corporate operates within the extremely aggressive beverage business, which is topic to altering shopper preferences and intense competitors. Any incapability to anticipate or reply to such adjustments may affect Vita Coco’s market share. Moreover, Vita Coco’s efficiency is topic to operational dangers, together with provide chain disruptions and adjustments in commodity costs. The corporate’s worldwide operations additionally expose it to dangers associated to forex fluctuations and differing regulatory environments. Lastly, the excessive quick curiosity in Vita Coco’s inventory signifies that some traders have a bearish outlook on the corporate, which may put downward stress on the inventory value. It’s vital for potential traders to fastidiously consider these dangers and conduct thorough due diligence earlier than investing in Vita Coco.

Closing ideas

In my view, Vita Coco presents a compelling funding alternative. The corporate’s spectacular return since its IPO, constant observe report of beating EPS expectations, and upward revision of its FY 2023 steering all level to a promising future. Regardless of working in a aggressive beverage business, Vita Coco has carved out a distinct segment for itself with its deal with coconut water. The corporate’s capability to develop quicker than the class itself, coupled with its enlargement into new product choices, additional strengthens its place. Whereas the excessive quick curiosity is a degree of concern, the corporate’s sturdy monetary efficiency and optimistic money circulate present a counterbalance. Subsequently, traders in search of a progress inventory within the beverage business could need to take into account Vita Coco.