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New Age Beverages (NBEV): Don’t Chase Headlines

Probably no other stock reacts to positive headlines more than New Age Beverages (NBEV - price target), yet the stock trades at yearly low. The company remains highly promotional of future opportunities without necessarily delivering on those plans. The latest example again hurt retail investors that over reacted to the headlines.

Nestea Tweet

On October 16, New Age Beverages tweeted that “big news” was on the way with Nestea. The market naturally jumped on the concept that the news was somehow related to a new CBD drink with Nestea owned by Coca-Cola.

While a CBD deal with Coke would be a potential game changer, investors should carefully trade any headlines not backed by actual results and performance. The company followed the next day with a tweet that Nestea Instant Sweet Iced Tea Mix was back.

The stock soared nearly $1 or 31% to $3.59 on the initial tweet. Clearly, an ice tea mix was not what any investor would consider as “big news.” The stock closed on October 17 at $2.82 for a minimal gain from this headline grabbing tweet.

History Of Missing Targets

An investor reaching for major news from New Age Beverages was burned yet again. The stock reached nearly $8 in February on CBD hype despite the company never living up to expectations.

The stock is now trading slightly above the 52-week low of $2.57 so investors should consider all of the other products promised as game changes that haven’t helped the business or the stock. One only needs to go back to the recent announcement of CBD approval in Japan or the previous Walmart (WMT) deal all burned investors falling for the headline hype while the actual results of the business missed targets.

On September 24, New Age announced the Japanese Narcotics Control Division and the Japanese Ministry of Health had approved the launch of CBD products in Japan. The stock jumped to $3.39 on the news before dropping to the 52-week low within about a week on October 2.

Back on April 8, the stock surged on news of an expanded distribution deal with Walmart. The large retailer agreed to distribute their Marley brand causing the stock to soar to $6.69. Within a month, New Age was trading back into the $4s before collapsing further into the $2s.

During this process, the company has a long history of missing estimates. The Morinda deal was promoted as creating a business with substantial EBITDA profits, but analysts now forecast New Age losing money in both 2019 and 2020.

The original 2019 revenue estimate surrounding the merger was $320 million. Now, despite the expanded distribution deal with Walmart and other retailers, analysts estimate revenues for the year down at only $274 million.

Takeaway

The key investor takeaway is that New Age Beverages has a history of announcing major deals and big news that doesn’t always come to fruition. The bottom line is that investors should avoid this stock on any hype, especially around CBD beverages, until the company more consistently beats financial targets and more accurately reflects actual big news within press releases and social media.

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Disclosure: No position