Splash Beverage Group (NYSE: SBEV) shares have broken free from a bearish grip. Since the start of September, shares have been trading higher by over 18%, touching $2.20 intraday last week. The more excellent news for those long SBEV shares is that the spike comes during a decidedly weak market period. Broader averages posted significant losses in the same period, with the DOW posting its largest single-day loss since 2020. The small-caps market didn't fare much better. The Russell 2000 index is lower by 4%, which in index terms is a substantial drop wiping out billions in value. (*share price of $2.20 on 9/15/22, 9:50am EST)
Still, while bearish sentiment may be driving investment decisions, not all stocks are conceding value. Instead, good company stocks, especially those with prices disconnected from fundamentals, are doing quite well. Splash Beverage Group is an excellent example, and investors appear to be taking notice, bidding shares higher after several company updates suggest that an already impressive growth trend is accelerating.
Not only from a single brand, either. SBEV is showing brand penetration across several market segments, with at least four compelling brands contributing to them posting exceptional growth on a comparative basis, including refreshing sets of record-setting revenues.
Compelling Brands In Major Markets
Most recently, SBEV announced that SALT Tequila continues its national expansion, scoring full distribution agreements throughout Nevada and Maryland. That's facilitated through Central Distributors of Las Vegas. There's more distibution firepower behind this 100% agave, 80-proof brand. Splash Beverage also announced inking deals with Maryland-based Carey Distributors and Wantz Distributors, rounding out statewide distribution along with Buck Distributing (previously announced) to distribute SALT throughout Maryland. Don't underestimate the potential put into play. Those mentioned are top-tier distributors and able to serve the surging demand for flavored spirits, an expected $50 billion segment by 2027. Most important to that proposition, SALT Tequila is ideally positioned to exploit its opportunity.
Other brands target similar revenue-generating opportunities. Getting the most press lately is its TapouT Performance hydration and recovery drink. This brand is in hypergrowth, announcing a string of distribution agreements making the product available to millions. In addition to placement deals with Walmart (NYSE: WMT), Splash announced distribution deals with powerhouse distributors like AB InBev and Great Bay distributors, one of Florida's largest Anheuser Busch (NYSE: BUD) distributors. That's not all. SBEV sales should benefit significantly from other distribution agreements, including those with dominant regional players like Golden Beverage Company, Anheuser Busch distributor, Bernie Little, Johnson Brothers, and divisions of Gulf Distributing Holdings, LLC. That's serving just the US markets.
SBEV signed a deal with China-based American Software Capital for TapouT and SALT, targeting an estimated $69 billion combined market opportunity in that country. Latin markets are in the crosshairs, too, with SBEV's intent to capitalize on appreciable development opportunities there. Of course, global market conditions can dictate the pace at which those deals gain traction. But with 14% global growth in the flavored spirits segment, and surging interest in energy and hydration drinks, hundreds of millions in potential revenues are in play. From a valuation perspective, those agreements deserve to be represented; current prices indicate they aren't.
Also missing from the equation is the inherent value from its deal with Walmart's wholly-owned Sam's Club, where SALT Citrus flavored tequila is being made available to members in 42 stores. Those who understand retail know that placement can transform from a 42-store deal into a national agreement if the products do well in those markets. If so, and segment growth suggests that could be the case, SALT sales could be a massive value driver in the coming quarters. And with the beverages industry conservatively applying upwards of 7X revenue multiples for brand valuations, it helps support the case that SBEV's stocks path of least resistance is higher. Keep in mind that SALT Tequila has more than one shot on goal; with a lineup of naturally flavored citrus, berry, and salted-chocolate flavored tequilas, it has multiple.
There's more to strengthen that presumption.
Copa Di Vino And Pulpoloco Are Value Drivers
Its Copa Di Vino and Pulpoloco sangria are also earning national big-box attention. Rightly so.
Its single-serve Copa Di Vino wine earned national attention by being the only product featured twice on the popular investment show Shark Tank. Every "shark" wanted a piece of that deal, a testament to the product's taste, position, and potential. But it's not only the great-tasting wine that can exploit a massive market opportunity. Its value as a leader in package sealing technology can't be overlooked or under-appreciated. In fact, that technology alone opens significant opportunities for SBEV to monetize, noting it's so good that Copa Di Vino can remain fresh for up to a year, compared to competing brands having a sell-by date in months, sometimes only days. In other words, the packaging technology alone can be a massive value driver. That's not all.
Splash's Pulpoloco sangria, a made in Madrid, Spain product, is also a best-in-class product offering quality taste and compelling packaging technology. Like Copa, this brand is more than about great authentic taste. Pulpoloco is packaged inside what many have called the most socially conscious and eco-friendly packaging in the markets- CartoCan. And the best news on that front is that SBEV holds exclusive rights to the unique packaging technology. Why does that matter? Because it may be the most sought-after packaging in the beverage industry, which could exponentially increase SBEV revenues.
That's a bold suggestion but well-supported. In addition to being 100% biodegradable, the innovative packaging technology is 30% more eco-friendly than aluminum or PET, uses 30% less total raw materials to create, and the raw materials that are used come entirely from renewable raw materials. That includes using only wood fibers from forests managed in an exemplary fashion, which has led to CartoCan packaging earning the exclusive right to bear the Forest Stewardship Council (FSC) label. And like Copa, the CartoCan keeps Pulpoloco shelf-stable for at least a year, keeping the vibrant character of its taste profile well-protected during that time.
Combining the potential from the product portfolio, taste and technology considered, a wide valuation disconnect is exposed. But, the good news is that it's a gap that SBEV is starting to close.
Accelerating Growth Through Managerial Expertise
That's shown by results. Recent financial reports show SBEV scoring record-setting revenue increases quarter over quarter since 2021. Those following SBEV from the start don't find that surprising. For many, it's expected from a management team whose members helped take Red Bull energy drink from zero to billions in global sales. With its current stable of brands, history may repeat.
Remember, brands contributing to SBEV's growth are some of the most compelling brands in their respective sectors, each tapping into high-growth market segments where billions of dollars are spent annually. And that's just current products. SBEV management is on record saying they plan to continually roll up profitable brands, incubate them, and either monetize them at multiples between 5X-10X revenue or keep them as a part of its growing products portfolio arsenal. Either strategy benefits investors.
They will also add to a products list that fueled a more than 2000% surge in comparative revenues during 2021. While referencing 2021 growth may be historical, it's pointing to a trend. In Q2/2022, SBEV scored record sales by posting a 41% increase to $4.8 million compared to last year. That's not all. SBEV has guided that growth will continue, even accelerate, noting its six new or expanded distribution/sales agreements with distributors or retailers will contribute more robustly to sales in the coming periods.
Notably, SBEV's $4.2 million on hand as of June 30, 2022, is expected to support that growth. If not enough, SBEV has reiterated that it has traditional non-dilutive funding resources available to maximize its opportunities. In other words, based on management comments, shares should not be trading lower on possible dilution concerns.
A Sum Of Its Parts Consideration
The bottom line is simple: SBEV is firing on all cylinders. Not just operationally but also from a products perspective that positions the company for accelerating growth in multiple market segments in Q3, Q4, and all of 2023. Thus, share prices at current levels, whether the result of SBEV being under the radar or misunderstood, represent a compelling and timely investment proposition. The sum of its parts makes the case.
Moreover, while SBEV is an excellent company today, it will be better tomorrow. And that's a trend expected to continue near and long term. Thus, those taking advantage of an SBEV stock that looks appreciably undervalued, benefits from being managed by a top-tier team, and has an untapped inherent value from brands and cash to support growth, could be rewarded sooner than later.
Of course, every investment has risk, but it's mitigated when finding and exploiting value in well-managed companies posting impressive, consecutive, record-setting growth. SBEV checks those boxes. And the better news; with SBEV intending to seize brand development opportunities, while an excellent company today, the best may be yet to come.
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