Shares of white nicotine pouch and smoking accessories maker and marketer Turning Point Brands (TPB 2.51%) are down 20% as of 11 a.m. ET this morning after the company released fourth-quarter earnings. During the quarter, Turning Point grew sales by 29% while adjusted earnings per share dipped 3%, with both figures outpacing Wall Street's consensus. However, management guided for adjusted EBITDA to decline 15% sequentially as the company continues its shift away from legacy smoking accessories and Zig-Zags to white nicotine pouches, and the market is taking a wait-and-see stance today. Ultimately, I don't believe today's sell-off is anything to worry about. Instead, it appears to be the product of a stock that was priced for perfection, after it rose 500% over the last three years before today's drop.
NYSE: TPB
Key Data Points
Initially known for its Zig-Zag smoking accessories and rolling papers, and its Stoker's smokeless tobacco, Turning Point is transitioning to a future powered by white nicotine pouch sales from its ALP and FRE brands. These nicotine pouch sales soared 266% in Q4, accounting for 34% of total sales, up from 12% last year. Looking ahead to 2026, management expects FRE and ALP to account for roughly half of the company's total revenue, potentially becoming the cornerstones of Turning Points' brands. However, this shift doesn't come without costs. The company saw SG&A expenses rise 38% in Q4 -- slightly outpacing revenue growth and causing profitability to decline -- as costs for marketing, compliance, outbound freight, and new production capabilities increased.
Image source: Getty Images.
That said, these all seem like necessary investments, as Turning Point Brands reinvents itself and quickly pivots from areas of slow (or no) growth to a nicotine pouch industry projected to grow by at least 20% over the next five years or more. Now trading at 27 times forward earnings, Turning Point's days as a traditional value stock are long gone. However, it's booming FRE and ALP brands could easily help it live up to this slightly lofty valuation as Turning Point adds the products to more convenience stores and brick-and-mortar locations across the U.S.
