Experienced investors know that markets can be extraordinarily inefficient when pricing stocks. Some valuations are high, some are low, and very few are just right. However, that's not all bad. In fact, investors can seize upon potentially lucrative investment opportunities by capitalizing on those inefficiencies. Splash Beverage Group, Inc. (NYSE-AMERICAN: SBEV) is a perfect example. In fact, its current $3.22 share price and $98 million market cap expose what could be a most compelling investment opportunity. However, with top-tier management, premium products, and international distribution already driving growth, the valuation gap may soon start to close.
In fact, its recent uplist to the NYSE-American exchange, its completed $24 million capital raise, and its product portfolio and rapidly expanding distribution agreements are already making that happen by putting SBEV in its best operating position in history. Its deal with China-based American Software Capital (ASC) alone opens up an estimated $69 billion market opportunity in those rapidly growing markets alone. Better still, that deal doesn't include just one or two brands from its product portfolio; it includes them all. Best of all, while the revenue-generating potential there is enormous, it still only represents one side of the globe. SBEV has agreements worldwide.
Inclusive to distribution deals already in place with large companies like Golden Beverage Company, Anheuser Busch (NYSE: BUD) distributor, Bernie Little, Johnson Brothers, and divisions of Gulf Distributing Holdings, LLC., SBEV recently announced a significant expansion into Walmart, Inc.(NYSE: WMT) owned Sam's Club, where it's SALT Citrus flavored tequila is now available in 42 stores. The better news is that the combined value from its agreements isn't a forward-looking proposition; they generate revenues today. And with a management team that understands how to develop and penetrate markets, expect SBEV to maximize its opportunities sooner rather than later.
Of course, distribution agreements are only as valuable as the brands themselves. There, the excellent news is that the SBEV product lineup combines premium quality with socially conscious manufacturing, with the result translating to a massive surge in revenues last quarter. The current quarter is expected to be even better.
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Brands Deliver 2058% Q1 Revenue Growth
In fact, SBEV entered the quarter with a massive revenue-generating tailwind at its back after posting a 2058% increase in revenues from its high-value brands Copa Di Vino wine, Pulpoloco Sangria, TapouT performance drink, and SALT Naturally Flavored Tequila. Better still, as strong as Q1 was, expectations are for Q2 and the back half of 2021 to be even better. After all, several of its distribution expansion agreements came after the first quarter's end.
That means that as attractive as the 2058% surge in revenues was on a comparative Q1 basis, the company is now better positioned to deliver multiples of that number by year-end. And with the capital to manage growth combined with members of a management team that helped take Red Bull energy drink sales from zero to billions, the smart side of this trade is overwhelmingly biased to the long side. Better still, SBEV's capital structure is impressive after eliminating all convertible debt from its balance sheet as part of its move to the NYSE-American exchange.
In fact, after its recent share consolidation, even if all purchase options were exercised, there will only be about 31 million shares outstanding. Combine that low share count with plenty of cash on hand and an expert team that knows how to deliver success, there's an argument that the intrinsic value in SBEV today far exceeds its current share price. That argument may get even more potent if shares don't spike meaningfully higher if bullish Q2 expectations are met.
And keep in mind, SBEV is better positioned than ever to exceed expectations.
A Premium List Of Revenue-Generating Brands
Leading the massive growth at SBEV may come through Copa Di Vino, it's single-serve wine product that earned national attention from being the only product featured twice on the popular investment show Shark Tank. While the sharks there were salivating to make a deal, the brand owner turned them down twice. That could become an excellent outcome for SBEV, especially considering that the sharks saw potentially billion-dollar market potential for the product. And with the China markets now in play, hitting that massive number is indeed possible.
Still, other SBEV brands are making an impressive name for themselves and are also positioned to benefit from global distribution agreements already in place. Its Pulpoloco sangria is also likely to become a significant brand in the China markets as it too targets the surging demand for wine among a younger generation of Chinese who have rising disposable income. And with demand for Western spirits and non-alcoholic beverages surging in that market, not only is Pulpoloco expected to see substantial growth, but so should hydration and recovery brand TapouT Performance and SALT Naturally Flavored Tequila. And with the company concurrently working with ASC to establish local manufacturing and streamline operations to maximize profitability in the region, all four brands could contribute high margin revenues in the coming months.
Even better, don't consider SBEV as content with its four high-powered brands. The company has already made it clear that a big part of its business strategy is acquiring more brands that meet quality and eco-friendly standards.
The result could keep SBEV in hyper-growth mode.
From Zero To Billions
In fact, expecting less than exponential growth may be short-sighted. Keep in mind, the team at SBEV has proven its ability to do more than generate revenues- they build brands. Most notably, team members helped take the energy drink pioneer, Red Bull, from zero to billions in revenues. And factoring in the deals made during the past three months alone, the team appears intent on having history repeat itself.
Best of all, SBEV brands are getting a head start. While Red Bull grew from a standing start, SBEV brands can hit the global ground running. And with its uplist, balance sheet improvements, and lean capital structure, the contribution from each can be immediately impactful. Better still, investors seeking growth can expect that management will deliver on its mission to add additional additional accretive brands to its business.
And it's not only its products earning attention. So is its manufacturing and packaging processes. Its Pulpoloco Sangria, for instance, utilizes highly efficient, eco-friendly CartoCan packaging to complement its already strong brand iconography. CartoCan is 30% more eco-friendly than aluminum or PET, uses 30% less total raw materials to create, and the raw materials that are used come entirely from renewable raw materials. Further, the packaging only uses wood fibers from forests managed in an exemplary fashion, giving CartoCan packages the exclusive right to bear the Forest Stewardship Council (FSC) label. That FSC label, by the way, is recognized throughout the world as one of the most prestigious awards for the processing of wood fibers.
And with consumers focusing on both brand quality and how products are packaged, it likely contributed toward the 71% YoY increase in Pulpoloco sales. Better still, it's a packaging technology that SBEV may be able to leverage. And if so, expect it to accelerate the growth of other company brands as well.
Bullish Expectations In 2H 2021
Q1 delivered exponential growth. And Q2 is expected to be even better. But going forward, investors can expect SBEV to do what it does best- execute on its initiatives. And with a history of taking brands from zero to billions, there's an excellent chance that they can deliver similar results from several of its brands. Keep in mind, its brands are well-known and available in massive global markets already. Thus, that expectation is far from wishful thinking.
In fact, while growth on a comparative basis is impressive, the point that stands out should be that management knows how to create value. And agreements made during Q1 and Q2 indeed position SBEV to prove that point. Better still, beyond them having the impact on generating another set of record-setting numbers, those deals should add to the massive amount of momentum already in place.
Thus, as noted, the work needed to find value in SBEV is already in the public domain. And for investors, having the ability to appraise the untapped value and act upon the disconnect can be the defining factor for successful trading. Speculation is fine, and it makes markets. However, measured speculation is a better long-term strategy.
If investing in well-managed companies with 2058% revenue growth is an already attractive proposition, SBEV fits the bill. However, for those that like to take things a few steps further, SBEV also offers a portfolio of excellent products, has substantial active international distribution agreements, a clean capital structure, and plenty of cash on hand. Thus, the combination of all could take Splash Beverage Group from an attractive proposition to an almost irresistible opportunity.
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