Shares of The Vita Coco Company (COCO 2.65%) jumped on Wednesday after the beverage company reported financial results for the fourth quarter of 2023 that beat expectations. Vita Coco stock finished the day up an encouraging 15%.
A good year for Vita Coco
Vita Coco enjoyed a 15% year-over-year increase for its net sales in both Q4 and for the entire year. The company enjoyed both higher sales volume and an increase to its prices.
Vita Coco experienced a massive improvement in profitability. Thanks to lower shipping expenses, the company's gross margin jumped to nearly 37% in 2023 compared with a gross margin of just 24% in 2022. And this improvement in gross margin was a big reason it was able to earn full-year net income of $47 million compared to just $8 million in the prior year.
With its top-line growth and massive profit improvements, investors were rightly excited about Vita Coco today.
Is Vita Coco hitting a ceiling?
With its Q4 report, Vita Coco's management gave financial guidance for 2024 which isn't bad but isn't necessarily great either. In the coming year, the company expects net sales of around $500 million and a gross margin of about 37% at the midpoint of guidance. This would represent just 1% top-line growth and only a marginal improvement to profitability.
Trading at around three times next year sales, Vita Coco stock isn't necessarily a cheap stock considering it doesn't expect growth. That would give me pause if I were considering this stock today but doesn't detract from its admirable accomplishments in 2023.
Long term, it could be fair to question how big Vita Coco's addressable market is. It's already the market leader in various markets for coconut water. Growth will likely need to come from other products in its portfolio, which may be a little harder for investors to predict.
