Today’s focus is on a company that now resides in our Run To One Model Portfolio

This portfolio consists of stocks trading under $1 per share (sometimes, well under $1) that we think have a good chance of eventually eclipsing that mark should the companies achieve revenue and EPS growth commensurate with what we expect, based on our research. 

The company is a manufacturer of non-alcoholic beverages. The company’s CEO has a strong industry background, annual revenues are on an upward trajectory, and the launch of a drink line targeting a significant market segment holds promise. With key distribution and financial initiatives, its potential for growth coupled with a favorable valuation makes it a very interesting stock at this time.

The company is already profitable at a small revenue base and has a much improved capital structure. It’s commitment to maximizing shareholder value is evident through the Board of Directors’ decision to reduce the amount of shares the company can issue and to initiate ongoing stock buybacks. The introduction of its new product line is expected to boost revenue growth in a business model that is already profitable.

The company’s CEO, an industry veteran with a reputable track record, further raises our curiosity. Despite the modest revenue base, the company has and established distribution network, particularly for its legacy specialty water line. With ongoing research into the prospects of the company’s new beverage line and an interview with management planned, we are excited to continue digging into this company’s growth potential.

While it’s too early to determine if the company’s extreme undervaluation will fill the gap between it an established beverage players like Monster Beverage Corporation (NASDAQ:MNST) and Celsius Holdings, Inc. (NASDAQ:CELH), the stock has potential to significantly rise if momentum builds in its new beverage product.

Caveats to consider include the stock’s illiquidity, especially in light of the company’s stock buybacks, the unproven nature of the new drink line, and the need to expand distribution to accelerate growth.

Here are a few more reasons why we like the stock:

• The company’s products have quietly gained a presence in 10,000 locations.
• The company just launched a new beverage product line that targets a market that is significantly larger than its current product lineup.
• This new target market segment is under served by larger competitors, giving this company a first mover advantage in a high growth industry.
• It’s already profitable at a small revenue base.

Valuation

It’s still too early to tell, but it is worth noting that shares are trading at a P/S of 2x vs. comps that sell at around 10x. Furthermore, the company has about $1M in net operating losses to offset future taxes.