Analysts at Goldman Sachs Equity Research are feeling optimistic about the long term growth potential for Vita Coco following a meeting last week with the company’s executive management.
According to a report issued by Goldman last week, the New York-based brand may see strong momentum in 2022 for its recently expanded innovation portfolio, with price/mix likely to be a strong driver for mid-teens topline growth next year as its branded product lines outpace its private label business.
“In short, [Vita Coco] is becoming a more ubiquitous brand – and that in turn gives the company the power to do more across its business,” the report stated.
Founded in 2004, Vita Coco filed for a $100 million IPO this fall and began trading on the NASDAQ in October. Like many of the better-for-you food and beverage brands that went public this year, the company has struggled to grow its stock price during its initial months of trading. But as Vita Coco continues to see solid sales gains, with projected fiscal year 2021 topline growth of around 19-21%, Goldman said the company’s stock has a favorable risk-reward and that it is “a unique investment opportunity within non-alcoholic beverages, especially in an environment where growth is scarce and there are few small-to-mid sized market cap opportunities for investors.”
Vita Coco’s net revenue grew 9.4% in 2020 to $310.6 million, according to company data. Current projections estimate it will end 2021 up 19.7% to $371.8 million. Gross profit in 2021 is expected to be around $114.4 million, with a gross margin of 30.8%. Total operating expenses are projected to cost around $90 million for the year at 24.2% of net sales.
The report cited a 15% topline CAGR through 2025, citing favorable consumer trends towards better-for-you products and favorable demographics; the brand overindexes with Hispanic and Asian, urban millennial, and Gen Z consumers. Vita Coco is also focusing on innovating within the coconut water category: its branded portfolio now includes Boosted, Super Sparkling, Pressed, Farmers Organic and Coconut Mylk lines. In particular, the brand could see strong runway in the convenience channel with ACV remains low.
Vita Coco’s brand management team – co-founder and co-CEO Mike Kirban, co-CEO Martin Roper, CFO Kevin Benmoussa and chief sales officer Charles Van Es – told the analysts that the company will continue expanding its platform as a health and wellness company, including new launches across non-alcoholic beverage categories through innovation and M&A opportunities. In particular, they highlighted recent moves by large beverage companies to pull back on M&A activity, leaving room for Vita Coco to become “a leader in the natural beverage segment.”
Most recently, the company launched sports drink brand PWR LIFT and also owns plant-based energy drink Runa and aluminum bottled water Ever&Ever. While the latter two brands have fought to gain traction in the marketplace, Goldman noted that management is “increasingly confident” in M&A as a means of growing the platform.
Like many in the current marketplace, Vita Coco is feeling pressures from supply chain gridlock and increased freight costs, but “unlike other CPG peers” like Monster Energy, Goldman said that the company is “pleased with its current inventory position” and expects to grow its product stock sufficiently in time for the summer selling season. If the brand is able to stay on shelves, Goldman added that its strong topline growth could drive EBITDA ahead of expectations for 2022.
“[Management] continued to stress that, ultimately, it’s prioritizing topline growth and share gains – and that they are making decisions for the [longterm] health of the business given transport cost pressures are still likely to be largely transitory. We agree this is the right strategy and expect [Vita Coco] to benefit over the next several years given this refreshingly [longterm] perspective.”