The Vita Coco Company, Inc. (COCO), which is headquartered in New York City, is a healthy beverage producer known for its coconut water drinks. Founded in 2004, COCO’s popular brands include Vita Coco, Runa, and Ever & Ever. The company is a leading player in the premium lifestyle drink industry, operating in 24 countries worldwide. It controls 46% of the market share in the United States and more than 70% of the market share in the United Kingdom.

COCO made its stock market debut through a traditional IPO on October 21, 2021, by listing 11.50 million shares on the Nasdaq Stock Exchange. The stock made a lukewarm market debut, opening just 2.5% above its initial price of $15. 

But the shares COCO slumped 1.7% intraday to close its first trading session at $13.52. The stock has since gained 12.6% in price.

Here is what could influence COCO’s performance in the near term:

Growing Popularity

Vita Coco’s premium lifestyle products are a big hit among the Millennial and Gen Z consumers, with 43% of its customers belonging to these generations. The company recently launched Vita Coco Pressed, which represents more than 8% of the coconut water category. According to IRI Custom Research, COCO is the third-largest standalone brand in this category and is the second-fastest-growing brand among its peers.

Impressive Growth Story

For the trailing 12 months ended June 30, 2021, COCO’s net sales grew 17% year-over-year to $334 million. Its retail sales for the coconut water category grew 29% year-over-year over the 13 weeks ended September 5, 2021. Its net income for the six months ended June 2021 rose 43% from the same period last year to $9 million.

However, the company’s adjusted EBITDA fell 16% from the prior-year period to $16 million for the six months ended June 30, 2021, due primarily to supply chain headwinds.

Intense Competition

The rising demand for healthy, calorie-free alternatives to energy drinks and refreshing beverages has fueled COCO’s growth over the past few years. However, several competitors are steadily gaining traction in the highly-competitive beverage industry and will likely threaten COCO’s growth trajectory. The rising popularity of sparkling water drinks, such as La Croix, might impact the demand for COCO brands.

Supply Chain Bottlenecks

Surging shipping prices and delays in raw material and final product deliveries have affected COCO substantially; it has been unable to stock shelves entirely over the past 18 to 24 months. While the company’s long-standing contracts with its suppliers have allowed it to purchase its most important raw material, coconut, at a relatively reasonable price, surging inflation has increased costs in other production phases. As a result, COCO’s adjusted EBITDA declined in double digits year-over-year in the first half of 2021.

POWR Ratings Reflect Uncertainty

COCO has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Value and Quality. In terms of forward non-GAAP PEG, COCO is currently trading at 2.1x, which is 20.7% lower than the 2.65 industry average. However, its 2.27 forward Price/Sales ratio is 53.3% higher than the 1.48 industry average. COCO’s mixed valuation metrics are in sync with its Value grade. In addition, its 31.48% trailing-12-month gross profit margin is 8.6% lower than the 34.43% industry average, which justifies its Quality grade.

Of the 36 stocks in the B-rated Beverages industry, COCO is ranked #36.

Beyond what we have stated above, one can view COCO Ratings for Momentum, Stability, Sentiment, and Growth here.

Bottom Line

COCO’s IPO is expected to accelerate its growth prospects over the long term because the company has been developing ancillary healthy beverages to expand its market reach. However, given current supply chain constraints and inflationary pressures, COCO’s profit margins might fall slightly in the near term. Thus, we think investors should wait until the supply chain issues get resolved, and COCO’s adjusted EBITDA margin improves, before investing in the stock.

How Does the Vita Coco Company (COCO) Stack Up Against its Peers?

While COCO has a C rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Coca-Cola Consolidated, Inc. (COKE) and Suntory Beverage & Food Ltd (STBFY), which have an A (Strong Buy) rating.

COCO shares fell $0.21 (-1.38%) in premarket trading Monday. Year-to-date, COCO has gained 12.57%, versus a 23.96% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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