As always, be sure to read my disclosures / disclaimers below. Cheers!
Recap of Today’s LIVE YouTube Briefing
I went LIVE on YouTube today to discuss SMSI, MRIN, GOOG, USAT, GAIA, TPCS, NBEV, TLRY, CGC, APHA, and HMMJ.
If you missed the live broadcast, you can see the entire replay here.
Negative on NBEV
Before I start, let me say the following:
1. I have nothing personal against NBEV. I have respect for management’s experience. Regardless of their track record at New Age Beverages, I don’t claim that I could do a better job of running NBEV or any other beverage company. I’m simply a business/equity analyst… and that’s where my experience is.
2. I have reached out to Wall Street veterans for their input on NBEV, its financials, and its valuation. However, I am not teamed up with anyone to attack this stock. Nor do I get paid for any of my research or articles. My background is well known and documented.
3. I have no interest in engaging in a holy war against the company or its stock. As has been the case with my past shorts (i.e. Bitcoin. Overstock, and Helios/MoviePass), my professional training and research simply leads me to conclude that NBEV is overvalued.
If you disagree, I respect that. Time will be the judge. It always is.
OK, enough preamble… let’s jump in.
Anyone involved with pott stocks should be familiar with the Horizons Marijuana Life Sciences Index ETF. This is a publicly-traded fund, which invests in dozens of publicly-traded pott stocks.
If you follow my work, this is important for the following reason…
My regular readers know that I’m very negative on NBEV’s valuation. Similar to my prior short calls on cryptocurrencies and Helios & Matheson / MoviePass (HMNY), many who own the stock don’t want to even hear a professional analysis.
That’s fine with me. However, if you wish to be successful, you have to learn to examine all data points and how to weigh them appropriately. Failure to learn this skill will subject you to something professionals call “confirmation bias”. It’s one of the top reasons why an investor will fail to make millions (and therefore a very important part of a professional’s training).
As it relates to NBEV, investors are in love with the story (I understand why!), but are missing/ignoring some critical weakness in the underlying asset, which I discussed in today’s video.
That being said, I’m quick to acknowledge Warren Buffett’s lesson that stocks are a voting station in the short-term and a weighing station in the long term.
In other words, stocks rise/fall based on supply/demand for the shares in the short term, but ultimately move toward their true and fair valuation over time.
Thus, even though I (and other professionals) believe that NBEV’s true value is 65-80% lower than its current stock price, I feel that the stock will reflect my analysis/math at some point. In the meantime, my short could go up and/or down.
This is where HMMJ can come in.
Based on my research, the stocks in HMMJ (as a basket) are a far superior investment to NBEV. I’m not saying that HMMJ is a great investment, but it is “far superior” to NBEV based on my assessment.
For those who don’t know, I’ve been following analyzing stocks for over 30 years, retired at 38 (due to my stock analysis ability), and have followed pott stocks for about 6 years. In fact, I did an extensive analysis of pott stocks in 2014, which concluded that 48 of 50 stocks I analyzed were overvalued (FYI, GWPH was one of the two that passed my tests).
I publicly advocated shorting 10 of those pott stocks and went a perfect 10 for 10…
Incidentally, GWPH was up more than 50% during this time frame.
For those who agree with my assessment on NBEV, but fear a continued rise in pott stocks, can buy HMMJ as a hedge against an NBEV short.
Similarly, those who wish to invest in pott stocks, but don’t have the time or training to figure out which ones are pumps, frauds, or simply overvalued, can buy HMMJ.
FYI, HMMJ aims to track the North American Marijuana Index, which “tracks the leading cannabis stocks operating in the United States and Canada. Constituents must have a business strategy focused on the marijuana or hemp industry, and are required to meet our minimum trading criteria. The Index is equal-weighted and rebalanced quarterly.”
If you want to see the stocks held by HMMJ, you can see it here.
Incidentally, despite what NBEV does, it did not qualify for inclusion in this index.
This provides some validation to what I’ve been saying for months. Any intelligent person (including NBEV longs) must agree that adding a new flavor (i.e. cherry; orange) or creating a diet version of your beverage is highly unlikely to make your company special.
This is exactly what CBD will be. The rise of CBD is coming and it’s great news if you sell CBD to beverage makers (as companies like Aurora and Tilray do). However, for beverage makers, it’s just another SKU. It does not make you a marijuana company. Otherwise everyone from Coca-Cola to Budweiser will soon be a marijuana company.
Don’t take my word for it. Just Google it and see for yourself.
Thus, NBEV’s competitive positioning vis a vi leading beverage maker (which has always been sub-par) will not change with the addition on CBD.
Beyond that, NBEV’s guidance calls for $20 million in EBITDA this year. Now, assuming they meet this expectation, that gives it a current EV/EBITDA multiple of 25x. For those who don’t know, that is obscene for a mature company ($300 million in expected revenues) with little-to-negative organic growth.
Experts with whom I consult agree that something closer to 5-8x would be closer to normalcy (but still be generous). That’s a decline of 68-80% from current levels.
Beyond that, there’s plenty of reason to doubt NBEV’s ability to generate $20 million in EBITDA. I’ve tracked the company for years (and even owned the stock) but soon realized that management consistently over-promises and under-delivers.
Product-wise, its Kombucha and Pedialyte products have both fallen far short of expectations set by management. Financially, the company has missed several quarters.
For short-sellers, the stock is becoming increasingly attractive. Not only is the valuation rising, but its share count has nearly quintupled in just three years. Not long ago, it had 15 million shares outstanding at 20-cents — it was very easy to move.
Now, at $7+ with 75 million shares outstanding (accounting for the Morinda acquisition), it has lost much of its juicy stock-moving profile. In fact, with its $500+ million valuation, it is now firmly in the sights of institutions, contributing to a fast-growing short interest.
So, while the excitement surrounding pott stocks (see below) can enable NBEV to creep higher, it doesn’t make the valuation right.
More from my live broadcast HERE.
If you want to see the entire broadcast, you can see it here. Cheers!
- My YouTube Channel
- Individual Stocks Showing Life
- The Quick Investor’s Guide To SMSI
- MoviePass Projected To Burn $600M In 2018
- Sprint Finally Rolling Out SMSI’s Safe & Found Nationwide!
- Lose 33% In 9 Months To Make 1,000% In 15?
- GAIA vs. MoviePass: CAC Shows Which One Is A True Mini-NFLX
- Buying SMSI — Today Is The Day I’ve Been Waiting For!
- Mark Gomes Research
To get my posts in real-time, just follow/subscribe to my free blog.
If you only want to receive my most critical reports, simply sign up for my MailChimp mailing list instead. If you’re on that list, you will only get key articles and occasional recaps of all the work I’ve recently done.
Disclosures / Disclaimers: I am long MRIN and HMMJ. I am short NBEV and NBEV call options. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.