There's a new bull in the New Age Beverages (NASDAQ:NBEV) camp. Compass Point analyst Rommel Dionsio is initiating coverage of the functional-beverages distributor with a buy rating. He's setting a $9 price target on the volatile shares.
Dionsio doesn't have the highest price goal for the stock, as that honor goes to David Bain at Roth Capital. He boosted his target to $11 six months ago, shortly after New Age Beverages announced that it was acquiring the much-larger Morinda Holdings in a highly favorable and accretive deal. However, with the stock closing at $4.64 on Monday, Dionsio planting his flag at $9 suggests plenty of upside from current levels. The shares would have to nearly double to get there, breathing new life into the once-obscure beverage stock that turned into a brief overnight sensation late last year as a marijuana play.
New Age Beverages turned heads late last summer after announcing that it would be rolling out CBD-infused drinks, expanding its offerings to ready-to-drink coffee, tea, and other functional beverages. There may be plenty of debate on the merits of CBD, but there's no denying that the nonpsychoactive portion of the cannabis plant is riding a trendy wave of acceptance.
The moment that New Age Beverages introduced its new line of CBD-spiked beverages, it became one of the handful of publicly traded plays on cannabis. Stock gains initially followed, and by the time New Age Beverages peaked at nearly $10 in late September, it had soared nearly fivefold year to date. It was still one of last year's biggest gainers, even though it has surrendered more than half of its peak value.
Let's go over a few reasons why Compass Point's Dionsio could be on to something with the timing of this week's bullish analyst initiation.
- New Age Beverages is expected to turn profitable this year, building on that in the coming years.
- The $85 million largely cash deal for Morinda is a game changer, exploding revenue and gross profit out of the gate. The move also opens up relationships with retail outlets internationally given Morinda's presence in 60 different countries, something that should help expand the reach of its existing portfolio.
- Short interest in New Age Beverages is at an all-time high, setting the stage for a short squeeze. It's against this backdrop that trading volume has started to ease up, something that can make a short squeeze even more potent since the "days to cover" ratio hasn't been this high since last summer.
All of the attention that New Age Beverages generated through the final months of last year didn't go to waste. New Age Beverages was able to sell stock at high prices, make a bar-raising acquisition, and establish itself as an early player in the CBD beverage market. Better days should be ahead for investors.