Bucha: This $1 Stock Is Now Worth Over $7

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Summary

  • Bucha is trading at an 80% discount to fair value.
  • The newly emerged company will be highly profitable, spinning off significant cash.
  • A NASDAQ up listing should push the share is even higher.

Congratulations to those who followed my analysis last year and bought Bucha (ABRW), formerly American Brewing, when it was trading under $.30. I liked the company then but the recent merger transformed Bucha to a whole new level.

Another trading opportunity was presented following my 5/23/16 Tweet, when I bought shares for $.69. Bucha is now trading in the $1.60 range.

Why I bought Bucha

As I stated last year, Bucha has the best Kombucha product in the category and should become a market leader. Kombucha is a beverage with purported health benefits and has been growing in popularity and market share at an astonishing rate.

What impressed me about Bucha’s product was that it was already selling in Whole Foods, Safeway, and Kroger’s. But what really sold me was the taste of the company's drink; Bucha Live Kombucha. It was far superior to the competitors' products. It’s no wonder revenue is growing 100% per year.

I encourage all investors to sample the product in a side-by-side test with the competitors. Before investing, I conducted taste tests with small groups, and Bucha came out on top in all cases.

Merger will amplify Bucha’s value

The trade just got a lot better. Bucha just concluded the merger with New Age Beverages for $20 million in stock and cash. What makes this such a good trade is that New Age is generating over $50 million annually. Combine that with Bucha’s estimated $5 million this year, and you have $55 million in combined revenue. Bucha is going from a $5 million dollar revenue company to a $55 million revenue company, instantly. But what makes this an exceptional trade is that the combined company is extremely profitable.

Bucha is trading at a fraction of fair value

The market has yet to understand this transaction, so Bucha’s share price has not risen appropriately. But as Wall Street becomes aware of the exaggerated mispricing, I expect the share price to be bid up to a more reasonable level.

Following the completed merger, based on the VWAP provision, there are just under 21 million fully diluted shares outstanding. With the recent share price of $1.60, that gives Bucha a valuation of $33.6 million.

With $55 million in annual revenue, and over $3 million in free cash flow, a $33.6 million valuation is ridiculously low. That indicates Bucha is trading at a .61 price to sales ratio. A rapidly growing, profitable company with best in class products and $55 million in revenue should be trading with a price to sales ratio of at least 3 or $165 million. Some would argue that a price to sales ratio of greater than 5 would be more appropriate given how other companies in this sector are trading.

The best comparison, in the healthy/functional beverage category, is Celsius (CELH). It’s generating $16 million in annual revenue, and has a valuation of $80 million, giving it a price to sales ratio of 5. Celsius is losing money, so from that perspective, Bucha deserves a higher multiple than Celsius given its profitability.

Another good comparison is Long Island Iced Tea (LTEA). It generated $2.14 million in annual revenue and has a $38 million valuation, giving it a price to sales ratio of 18. That’s a high multiple, considering the company is still losing money, but it does have good products, and is growing rapidly.

To give you a broader perspective, let’s look at two more fully developed companies in the mainstream beverage space. First, Monster Beverages (MNST), with its phenomenal distribution, is trading at a price to sales ratio of 11. Slow-growth Coca-Cola (KO) trades at a price to sales ratio of 4.

Since Bucha should soon be NASDAQ listed, we should also consider the NASDAQ average price to sales ratio, which is 3.2. There are some money-losing slow growth companies in NASDAQ, so from that perspective a company like Bucha, with profitability and impressive growth should be trading at a revenue multiple greater than 3.2.

When we take all these comparisons into consideration, it becomes obvious that a .61 multiple for Bucha is an extreme example of market mispricing.

Summary:

  • Celsius (CELH) is trading at 5 times sales.
  • Long Island Iced Tea (LTEA) is trading at 18 times sales.
  • Monster beverages is trading at 11 times sales.
  • Coca-Cola is trading at 4.5 times sales.
  • The NASDAQ average is trading at 3.2 times sales.
  • Bucha is trading at .61 times sales.

Why I like price to sales ratios

I prefer price to sales ratios over P/E ratios, because price to sales ratios are more difficult to manipulate than earnings. By the time earnings numbers reach the bottom line they have passed through so many spin related filters that the numbers are more difficult to interpret. Price to sales ratio are tied directly to revenue, so in my experience it’s a more accurate way to determine a company’s true valuation.

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Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this ...

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