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Is Vita Coco (COCO) a Buy After its Recent IPO?

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The Vita Coco Company, Inc. (COCO) is a New York-based company that develops and sells packaged coconut water globally. COCO portfolio includes a wide variety of products such as coconut oil and coconut milk, energy drink Runa, packaged coconut water, and the recently introduced flavored protein-infused water PWR LIFT. The company distributes its product through various channels, which includes fitness clubs, grocery and drug stores as well as through their website.

On October 21st, The Vita Coco Company made its debut on the Nasdaq through a traditional IPO by listing 11.5 million shares at $15 per share. COCO raised approximately $172.5 million from the IPO, which is expected to fund general corporate expenses. It’s important to note that the stock ended its first trading session at $13.87, down about 10% for the day. In addition, the stock has since consolidated near the $14 level. 

In today’s article, I am going to analyze COCO’s stock fundamentals to see whether it presents a buying opportunity after its post-IPO pullback. 

Industry Outlook

According to the company’s S-1/A report, Vita Coco sees a market share opportunity of about $54 billion, consisting of $21.68 billion in the water and enhanced water segments, $16.6 billion in everyday nutrition and hydration, and $15.5 billion in the energy drinks category. 

The company has positioned itself as a leader in the coconut water market. COCO has strong brand awareness and consumer loyalty as “for 69% of COCO’s shoppers, Vita Coco is a planned purchase, and for 50% of its shoppers, it is the only brand considered (S-1/A report, page 25)”. 

As a result, its market share in the United States has increased from 42% in September 2020 to 46% in September 2021. In addition, Grand View Research reports that the global coconut water market was valued at $4.27 billion in 2019 and is projected to grow at a CAGR of 16.1% during 2020-2027. Hence, I believe that the company’s leadership position and the current trends toward a healthy lifestyle should help it capitalize on this growth. 

Vita Coco’s Financial Performance  

Let’s take a closer look at the company’s S-1/A filing to analyze COCO’s historical financial performance and growth prospects. 

As of six months ended June 30th, 2021, the company’s revenue has been reported at $177.26 million, representing an increase of 15.2% on a year-over-year basis. The company’s sales from its Americas segment, which accounted for 84.6% of total revenue in the first half of 2021, increased 15.3% year-over-year to $150 million. This increase was primarily driven by a 30.4% increase in Vita Coco Coconut Water sales, while Private Label and Other revenues demonstrated a slight decrease. Its International segment delivered a great performance as well. International sales came in 15% higher at $27.26 million. 

The gross profit figure stood at $53.06 million, remaining flat compared to a year-ago period. Also, the company’s gross profit margin decreased from 35.3% to 31.2% as of 1H2021 amid higher costs across ocean freight, fulfillment, and shipping expenses caused by the COVID-19 pandemic. However, the company may see a higher gross profit margin in the subsequent quarters as the pandemic fades.

The company’s net income was $9.42 million in the first half of 2021, up 43% from a 1H2020 figure of $6.58 million.

The Bottom Line

With the recent pullback in its share price, the company looks even more attractive at current levels. Hence, I believe that COCO could be a promising “buy and hold” stock for long-term investors.

COCO continues to gain market share with its coconut water, known as Vita Coco, which can lead to higher revenues in future quarters. In addition, the company improved its main operating metrics in the first half of 2021, which is a refreshing sign for investors.

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Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. Oleksandr focuses his trade strategy around “special situations” (such as catalysts, potential acquisitions, or spin-offs) and how to make money from those catalysts, as direct stock purchases, combined with option-based approaches for risk minimization.

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