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Did New Age Beverages Go From a Cannabis to a Coronavirus Play?

By Rick Munarriz – Apr 14, 2020 at 10:40AM

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The functional beverage specialist is playing up the success of its immunity-boosting products.

Leave it to a one-time high-flyer to find a new way to get high again. New Age Beverages (NBEV -1.96%) had a short-lived surge in the latter half of 2018 when it introduced a line of CBD-spiked drinks, a move that took shares of the functional beverage distributor from a low of $1.30 in late August of that year to as high as $9.99 a few weeks later on the buzz surrounding the launch of its cannabidiol beverages.

New Age Beverages stock has gone on to give back all of those gains. Its $1.30 close on Monday matches its 2018 low. However, an encouraging financial update on Tuesday that plays up the success it's having with its patented immunity-boosting beverages is breathing new speculative life into the volatile stock.

The same distributor that was riding high two years ago as a CBD play is now setting up the pieces on the playing board to be approached as a COVID-19 play.

Multicolored cans of New Age Beverages' Mellow Mood beverage line

Image source: New Age Beverages.

Fizzing up a hot trend

New Age Beverages offering up better-than-expected preliminary results for the first three months of the year is encouraging. It now sees revenue clocking in between $62 million and $64 million for the first quarter. The 6% to 10% year-over-year advance may not seem like much for a company that saw its top line soar 386% in 2019, but that was one of the few things at New Age Beverages that wasn't organic last year -- and the market saw through that. 

New Age Beverages took advantage of its surging stock in late 2018 to acquire the much larger Morinda Holdings. The needle-moving purchase expanded its product lines and, just as importantly, its international distribution outlets. Investors didn't care, sending the stock 65% lower for all of 2019. 

The market saw past the reported revenue growth, focusing on the lack of organic gains. It also didn't help that gross margin would go on to decline with every passing quarter, going from 66% in the first three months of last year to 54% by the fourth quarter. Tuesday's update finds it targeting gross margin for the recently concluded quarter to be in the low- to mid-60% range. The handful of analysts still following the stock were bracing for a slight dip on the top line, so the 6% to 10% increase -- on accelerating margins -- is naturally a welcome development. 

New Age Beverages is crediting the positive organic growth -- now that it has lapped the Morinda acquisition -- on double-digit growth in China as well as its North American retail and direct distribution businesses. The launch of Noni+CBD in Japan is helping renew growth in that country. The launch of TeMana Shape -- an intermittent fasting product -- is helping boost results. New Age Beverages is also playing up the consumer interest in its beverages that allegedly strengthen immunity, including 'Nhanced Cell Defense and Tahitian Noni, products folks may be taking to as a way to fortify themselves against the threat of coronavirus.

The Tuesday morning financial update mentions the coronavirus crisis just once. It notes New Age Beverages' "improved growth rates and gross profit performance in the midst of a changing business environment as a result of the COVID-19 pandemic." It reads as if the crisis is more of an obstacle than an opportunity, but the term COVID-19 is one of the five tags submitted with the release. New Age Beverages wants to be noticed again, and Tuesday morning's initial pop at the open shows it's doing exactly that.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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