Reeds Incorporation (REED) to Mendocino Brewing Company (MENB). Both companies are quite similar. REED has a market cap of $47.5 million on revenues of $30 million. Reeds has 11.98 million shares outstanding; float of 8.44 million share with cash of $1.43 million, and debt of $6.66 million. REED trades at a range of $4. MENB has a market cap of $3.28 million on revenues of $39.80 million. Mendocino Brewing has 12.61 million shares outstanding; float of 2.22 million with cash of $139 thousand, and debt of $10.15 million. MENB trades at $0.26. Obviously, REED has more cash and a smaller debt than MENB. But REED issued perferred shares to raise the needed cash to hurdle the company throught the transition to positive earnings. Currently MENB is making the same transition to positive full years earnings on much higher revenues. So, what justifies REED to trade at its current levels? Could REED be very over priced? Obvious being able to contrast gives us different perspectives, but it all boils down to earnings. Right?
The main difference between the two companies is that while Mendecino Brewing sales are dropping , sales are still rising at Reed's.
Reed's pulled back for a few reasons.The first few bucks was simply due to how far up the stock had run in such a short period of time. This second leg down is due to some real questions that investors have.
If sales for the year just hit 30 million, what happened? if they are closer to 31 but the company just wanted to trumpet breaking 30 the issues might not be as big as they seem.If sales of the branded product grew 20% and around 700,000 bottles of revenue were included in the quarterly numbers for for the Kombucha roll out, then there is a significant revenue shortfall somewhere else.The lack of clarity on that has brought the stock down the rest of the way.
If it is a shortfall is in the store brand business that leaves one solid driver of growth for the company in the fourth quarter.While the roll out and sampling for the Kombucha should help the first and second quarter numbers, there will have to be long term adoption of the product by consumers for the product to have a long term impact on the numbers (all the cheerleaders need to do is remember how excited people were, including the CEO, about the launch of the nausea product a few years ago).
My big question for the short run is whether this is a good entry point for the stock or will the final numbers for the fourth quarter knock the stock down a little more. After the bottom is set I think the stock will have a very good year as the branded product sales grow and the Kombucha product is rolled out to more locations.The longer term results will depend on whether the Kombucha product can get any market share after the initial sampling of the product.