Is Black Rifle Coffee stock a buy now that the business is on a more sustainable path?
With only a garage and a one-pound roaster, three friends founded Black Rifle Coffee (BRCC -0.17%) in 2014. It started as a direct-to-consumer (DTC) coffee company with a strongly patriotic brand identity. And from those humble beginnings, things have really taken off. The company, which generated nearly $400 million in revenue last year, expects to generate at least $430 million this year.
While the business has been successful (going from nothing to $400 million in 10 years is impressive), Black Rifle Coffee's reception on the stock market has been another story. Shares started off at $10 in 2021 through a special purpose acquisition company (SPAC). And on Feb. 7, 2022 -- the day the SPAC completed its merger with Black Rifle Coffee -- the stock closed above $16. But after climbing for much of March to a peak above $30 in early April, the shares consistently tumbled lower, dropping to below $3 per share late last year.
Now, however, it appears that Black Rifle Coffee stock is finally back on track. From that low, it has risen by more than 100% over the last eight months to around $6 a share. That's a far better return over that time than the S&P 500 or larger coffee companies Starbucks (SBUX -0.20%) and Dutch Bros (BROS 5.96%) have delivered.
Are things suddenly going better for Black Rifle Coffee, or is this a case of stock market irrationality?
Black Rifle Coffee's growth deserves attention
DTC sales aren't the heartbeat of Black Rifle Coffee's business anymore. In the first quarter, the company's DTC segment accounted for only 33% of total sales. Moreover, DTC sales were down 11% year over year.
Nowadays, the company sells most of its products in retail stores. It's coffee is easier than ever to find because the company has struck deals with retailers including Walmart and 7-Eleven. It also more recently inked an agreement with beverage giant Keurig Dr Pepper.
Walmart is the largest brick-and-mortar retail business in the country, so it's obvious how getting on its shelves has catalyzed revenue growth for Black Rifle Coffee. Keurig Dr Pepper owns some of the most popular home-brewing devices, again extending Black Rifle Coffee's reach.
The 7-Eleven partnership is also significant, as are similar deals with its convenience store peers Circle K and Casey's General Stores. Black Rifle Coffee started making canned ready-to-drink beverages that are now available in more than 87,000 stores.
In terms of growth rates over the last few years, Dutch Bros still takes the prize among these three coffee stocks. But Black Rifle Coffee is putting up pretty good numbers of its own.
BRCC Revenue (TTM) data by YCharts. TTM = trailing 12 months.
I believe it's reasonable to think this is a coffee brand with staying power. The company puts an extra emphasis on veterans and first responders with its corporate values and charitable giving. The company also set the long-term goal of hiring 10,000 veterans. Considering that some veterans struggle to find work after exiting the military, that's the kind of mission that people can rally behind. After all, many people either are veterans or are related to veterans.
Why Black Rifle Coffee stock is up
After that initial period of enthusiasm, investors seemed to give up on Black Rifle Coffee stock, dropping its price-to-sales (P/S) ratio to well below 1 -- a cheap valuation.
BRCC PS Ratio data by YCharts.
It's unusual for a high-growth company such as Black Rifle Coffee to trade at a P/S below 1, but it can happen if the business is burning cash. And this company was.
However, in Q1, it posted its first quarter of positive net income since it went public. Granted, that profit was meager at less than $2 million. But management also said it expects to post a full-year profit. With the business apparently having turned a corner, investors are responding accordingly.
If Black Rifle Coffee can sustain profitable growth, I believe this business will be worth a lot more several years from now. But is that expectation reasonable?
Regarding profits, I believe Black Rifle Coffee is on a more sustainable path. Its canned beverages are taking market share and providing some of its top-line growth. And management just made changes to manufacturing and distribution that should result in higher profit margins.
Regarding growth, Black Rifle Coffee is still relatively small, with less than $400 million in 2023 revenue. I believe its brand message has enough appeal to develop a loyal customer base, and can support much larger revenue.
It's not a sure bet. But Black Rifle Coffee's business is on a good trajectory and its stock trades at a reasonable price. Therefore, it could make a good addition to a balanced portfolio of stocks.
Jon Quast has positions in Starbucks. The Motley Fool has positions in and recommends Starbucks and Walmart. The Motley Fool recommends Casey's General Stores. The Motley Fool has a disclosure policy.
