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Risk-Reward With National Beverage

- By Jonathan Poland

National Beverage (FIZZ), maker of La Croix water products among other beverages, released earnings last week, missing on both the top and bottom lines. Sales declined 3% and net income fell almost 40% year over year.

CEO Nick Caporella apologized for the performance in a statement accompanying the report, saying, "We are truly sorry for these results. Negligence nor mismanagement nor woeful acts of God were not the reasons - much of this was the result of injustice!"


Injustice? It's surprising that the company didn't suffer more of a financial drop considering the lawsuit filed against it back in October, which contradicted the company's "all natural" ingredient claims. It was alleged that some of the ingredients were synthetic and even harmful for human consumption. The Food and Drug Administration has found the ingredient to be safe, but since then, the stock has fallen by almost 50%, exacerbated by the latest earnings report.

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With the stock under $60 a share, as long as the performance stabilizes, the company remains a solid long-term investment. In the last decade, National Beverage has improved its revenue and earnings almost every year, driving up sales from $575 million in 2009 to over $1 billion in the last 12 months and earnings from $25 million to $151 million in the same time.

The company's La Croix brand has become increasingly popular, yet with the negative headlines in play, National Beverage may well lose some of its fizz in the short term. However, aside from the lugubrious remarks from its CEO, the company is in good shape. Since its initial public offering in 2013, the book value has grown from $1.26 to $6.55, all without spending more than 40% on capital expenditures. The company is even expected to earn north of $4 per share in 2019. If that comes to fruition, the price multiple would be under 15x, a 50% discount to National Beverage's historical average, and 7.5 points lower than the industry average.

Just getting back to either of those averages would put the stock in the $90 to $120 range. National Beverage is growing much faster than Coca-Cola and PepsiCo, and should garner a higher multiple. Only time will tell whether or not the lawsuit has any real impact on the company's customer base, but with a $2.7 billion market capitalization, it's worth at least a flyer.

Disclosure: I am not long or short National Beverage.

This article first appeared on GuruFocus.