Shares of Vita Coco (COCO +1.25%) were down 7.2% as of 11:45 a.m. ET Thursday, according to data provided by S&P Global Market Intelligence, undoing a gain from the previous day that was driven by a strong third-quarter earnings report. While Vita Coco reported strong revenue growth, beat analyst expectations across the board, and raised its full-year guidance, Wednesday's gain was essentially erased.
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A strong performance, but a lofty valuation and tariff headwinds
The beverage company reported revenue of $182 million in the third quarter, up 37% year over year and $25.5 million higher than the average analyst estimate. Earnings per share came in at $0.40, up 25% year over year and $0.11 better than analyst expectations. Sales of coconut water surged by 42%, and the company expects high-teens growth for the core product this year.
Vita Coco raised its full-year revenue outlook to a range of $580 million to $595 million, but two factors at play could be dampening investor enthusiasm. First, Vita Coco's valuation is high. The stock trades for roughly 36 times the average analyst estimate for full-year earnings per share.
Second, tariffs are having a negative impact on the gross margin. Vita Coco reported a gross margin of 38% in the third quarter, down from 39% in the prior-year period. This decrease was driven partly by tariff costs, although the company was able to boost pricing to partially offset the tariff headwind.
For the full year, the tariff situation will get a bit worse. The company expects a gross margin of 36% for 2025.
NASDAQ: COCO
Key Data Points
Is Vita Coco a buy?
While tariffs are impacting margins, the company's growth is impressive, and the company's push into flavored beverages is augmenting the core coconut water business. While the stock may be attractive to growth investors, a high valuation is something to be concerned about.
