Right around the time investors had their fill of SPAC stocks, along came Truth Social shell company Digital World Acquisition (DWAC), and retail traders' moonshot SPAC-stock dreams were promptly revived.
After that rocket ride, Wall Street's on a desperate search for the next Digital World. Perhaps it could be SilverBox Engaged Merger Corp I (SBEA), which is similar to Digital World in that it's also a shell company merging with a conservative-leaning, grassroots-ish business.
However, since the target company in question is a coffee shop chain, perhaps curious investors should make comparisons to the actual competition -- e.g., coffee behemoth Starbucks (NASDAQ: SBUX) -- rather than to Digital World.
Image source: Getty Images.
Brewing up the basics
As is sometimes the case with start-ups that are still in the process of going public, SilverBox target business Black Rifle Coffee Company has no publicly available 10-K or 10-Q forms to sift through.
Hence, for clues as to the company's financial standing, the best we can do is comb through Black Rifle's own materials. Since these will inevitably be promotional in nature, informed investors must be able to read between the lines and connect the dots.
At first glance, you'll be led to believe that Black Rifle is the next Starbucks in the making. Founded in 2014, the company has "outposts" (brick-and-mortar locations) and an online sales platform that largely mirror those of Starbucks.
As for the coffee itself, Black Rifle claims superior quality, as all of Black Rifle's Arabica beans have an 83-point grade or higher (on a 100-point coffee-quality grading scale set by the Speciality Coffee Association of America or SCAA), and the coffee is roasted in-house daily; meanwhile, Starbucks doesn't seem to provide a numeric SCAA grading, instead serving up vague ad copy about coffee from "exceptional" beans. In any case, plenty of local coffee shops try to compete with Starbucks on coffee quality and fail, as none of them have the same vast name recognition and loyal following.
Moreover, Black Rifle's products typically aren't much cheaper than Starbucks' comparable offerings, and sometimes they're actually more expensive. For example, a 12-ounce bag of Black Rifle coffee beans costs anywhere from $14.99 to $25 online, while you could just as easily go to Walmart and pick up a 12-ounce bag of Starbucks coffee beans for around $17.
Rifling through the data
What really differentiates Black Rifle isn't the quality or price of its coffee but the company's political stance. While Starbucks might lean neutral or slightly liberal/progressive/environmentalist in its image, Black Rifle Coffee Company is decidedly conservative with its unabashed support of Second Amendment rights.
We can certainly commend Black Rifle's commitment to supporting America's military. The company has a long-term hiring goal of 10,000 U.S. veterans, and it's not inconceivable that Black Rifle can acquire a small but loyal following of patrons among the military community.
Unless you're solely investing in Black Rifle to support the cause, however, you'll undoubtedly want assurance that the company is growing its revenues and is either profitable now or successfully working toward that objective.
If we're going to make comparisons to Starbucks, then it's worth noting that Starbucks has been highly profitable, with net earnings of $4.2 billion in the year ended Oct. 3, 2021, a whopping 352.4% increase compared to the $9.3 billion recorded in the year ended Sept. 27, 2020.
In terms of top-line results, Black Rifle certainly appears to be firing on all cylinders, with 67% compound annual growth rate (CAGR) in net sales from 2019 to 2020 and 37% CAGR expected from 2021 through 2023. Current and expected gross profits are similarly encouraging.
However, after reading the fine print (literally -- the font size is much smaller in the company's investor presentation), prospective investors might get the bottom-line blues. As it turns out, Black Rifle is bracing for a net loss of $12.1 million this year, another net loss of $11.6 million next year, and finally a net profit of $1.2 million in 2023.
Investors might get roasted
Regardless of politics, SilverBox's investors should hope to catch the next Starbucks rather than the next Digital World.
Since Black Rifle can't compete with Starbucks on name recognition or price, and the quality of the coffee isn't its primary customer draw, investors will have to hope that Black Rifle can continue to grow its military-focused following.
The real sticking point, though, is Black Rifle's bottom line. While Starbucks shoots down the path to earnings growth, it will be a while before Black Rifle is, indeed, in the black.
