New Age Beverages (NBEV) has turned into junk food for investment portfolios.
Right now, this functional beverage company is rolling. We don’t mean it’s rolling in cash. NBEV has indulged in rolling up other weak companies. We’ve written cautionary notes before about how roll-ups’ flashy announcements get everyone excited, then they briefly get to claim acquisitions’ revenue. Everything looks fine for a while.
Then bigger expenses and headaches hit … and often bigger losses … before long, the whole thing may wash into a roaring abyss. We’ll offer an example below.
This Denver roll-up has gone into a cash-starvation diet that may be resolved with a significant cash raise.
NBEV was once a little craft beer company that didn’t exactly produce the envisioned Rocky Mountain high. NBEV sold everything 1 ½ years ago for just $395,650 plus debt. So now it’s trying tripped out water – so-called functional beverages – in an attempt to compete against established name-brands produced by industry giants. Drinks include Live Kombucha, Xing Tea and Aspen Pure, which users can apparently only buy directly from the company.
NBEV’s viewpoint is here and here. Meanwhile, let’s look at why we think it’s time to stop guzzling the NBEV Kool-Aid …
*Poor Performance; Extremely Expensive
NBEV margins and cash flow to sales ratios are terrible.
Below, we compare key profitability ratios for NBEV versus peers.
(Sources: CFRA/S&P Global, TheStreetSweeper)
But the company’s peers perform far better. NBEV also loses money, while the others make money.
Nevertheless, NBEV’s price is 37% higher than competing drink companies.
(Sources: CFRA/S&P Global, TheStreetSweeper)
Amid only marginally better revenue last quarter – just 2% – the losses remain overwhelming:
NBEV has managed to attract only a couple of the lower-tier investment firms, Maxim and Aegis. These firms analyze and handled the underwriting for risky NBEV.
Maxim Group gave the stock a $7.50 future target, while Aegis gave it a $6.25 12-month target.
But it’s no surprise that these firms, which would probably like to receive the lucrative fees for handling NBEV’s upcoming stock offerings, may be overly bullish on the company.
An SA pump piece has likely also fueled the stock rise.
*Insider Says Sell!
The stock rally, though some insider buying occurred earlier at around $3 or $4, has put a key insider’s finger on “sell.”
A company director – the chairman/founder/former CEO – recently unloaded a raft of stock. He sold a whopping 300,000 shares or $1.7 million worth.
Now the stock is ~27% higher than the selling price when the former CEO and current executive chairman, Neil Fallon, dumped stock.
So, it would be no shock for other NBEV insiders to follow his lead and unload part of their own stock.
*No Shapeup After Shakeup
The current CEO, Brent Willis, has his work cut out for him. He is recently experienced in online teaching, martial arts, e-cigarettes, plus XFit Brands(OTC stock fetches $0.07, most recent filing is inability to timely file 10-Q, interim CEO just fled) , with earlier beverage experience. Here and here are profiles of Mr. Willis.
Mr. Willis also had a brief stint with Kmart and Coca-Cola experience from 1996 to 2001 but continues to work as executive chairman of the imploding XFit. An NBEV director, David Vautrin, recently resigned as XFit’s interim CEO but remains as director. Below $1 was the best XFit traded for under the ticker “XFTB.” After the change to “XFTBE” in May, the stock continued to drop off the cliff:
(Source: Yahoo Finance)
Rollup activity – such as NBEV’s – often triggers trouble with unexpected expenses and rolling in a different business.
Rollups can turn on a company. While acquisitions can’t be solely blamed for TransEnterix Inc.’s (TRXC) massive decline, the ill-advised $94 million acquisition of money-losing SafeStitch must have contributed. Since our report last year, the growing TransEnterix disaster has torn up the stock.
Though a beverage company and robotic surgery company are worlds apart, NBEV has just acquired a company – for 1.2 million restricted shares or apparently what they think it’s worth – that seems a slight deviation from its beverage core. Premier Micronutrient Corp., which received a 2011 FDA health fraud warning letter regarding inaccurate claims in marketing materials (company response here), focuses on antioxidant supplements.
And it’s just the most recent of the 8 NBEV acquisitions in just two years:
2015 – B&R Liquid Adventure
2016 – New Age Beverages, Aspen Pure, New Age Properties, Xing Beverage
April 2017 – Maverick Brands, Marley Beverage Company
June 2017 – Premier Micronutrient Corp.
*Thirst For Cash
NBEV tells us that it’s always depended on stock sales and debt to get by.
Just in February, they sold $15.6 million worth of $3.50 stock but still ended up over $7.6 million in the hole… $707,000 lost last quarter alone.
Cash has dwindled to $535,000 and with the stock trading around record highs, this is an opportune time for a significant raise.
We’re not saying this is one of the worst companies we’ve ever covered. The product category is appealing, though healthy drinks may be a fad and huge names are slurping up shelf space.
But the market hasn’t priced in the risk. NBEV – a $215 million healthy drinks company – really isn’t so healthy itself and we wouldn’t buy the stock even close to today’s price. Near-term, this stock should easily drop 30%.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in NBEV and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to email@example.com.