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Finance

Should NewAge Inc. Be in Your Portfolio?

NewAge Inc. (NBEV) is a Denver-headquartered consumer goods company focused on organic and wellness products. The company was founded in 2010 as New Age Beverages Corp. and rebranded last July, with beverages – including liquid dietary supplements and ready-to-drink items – now representing half of its product portfolio. The company’s products are sold through retail and e-commerce channels in more than 75 countries.

NBEV is frequently grouped with the cannabis stock sector because of its cannabidiol (CBD) infused ‘NHANCED Hemp Topical product line of creams, lotions, and oils that premiered in 2019 and the Noni+CBD beverage that went on sale in Japan last February. In January 2019, NBEV signed licensing agreements with companies owned by the family of reggae icon Bob Marley and Docklight Brands Inc. for a Marley branded line of CBD-infused products, but to date, no product has come to market under that brand.

In July 2020, NBEV announced its acquisition of ARIIX, a multilevel marketing company specializing in supplements, creams and lotions, air and water filtration products, and health and beauty products; the company also picked up four additional companies in the e-commerce and direct selling channels with this deal. Two months later, NBEV announced the divestiture of its Brands Within Reach LLC (BWR) subsidiary, which encompassed the licensed brands Nestea, Volvic, Evian, Illy, Kusmi Tea, and Saint Geron along with retail brands including Xing, Búcha Live Kombucha, Aspen Pure, and CoCo Libre. NBEV acquired BWR in 2019 and CEO Brent Willis stated the divestiture came at “the most opportune time to minimize resources to smaller and less profitable components of our business.” 

NBEV previously traded on the OTC markets before its February 2017 initial public offering, which raised $15 million. The stock made its debut on the NASDAQ trading at $4.19.

Here’s how our proprietary POWR Ratings system evaluates NBEV:

Trade Grade: B

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NBEV is trading at $2.96, which is closer to its 52-week high of $3.49 than its 52-week low of $0.98. The stock tumbled with the rest of the market last March when the pandemic disrupted the economy, but it slowly regained its footing before taking an abrupt upswing in July with the ARIIX announcement. Since then, the stock has ebbed and flowed without any extreme fluctuations.

Buy & Hold Grade: C

The stock’s proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, but in this case, the company’s dramatic structural changes during 2020 do not seem to be inspiring investors.

NBEV’s complex situation was on display in the Q3 earnings released in early November. The company reported Q3 net revenue of $62.7 million, down from $69.8 million for the third quarter of the prior year, and the company insisted the variance was mostly fueled by the “impact of COVID-19 and the timing of significant qualification events in the company’s Asia markets.” However, its U.S revenue growth for Q3 was up 11% year-over-year, while Q3 gross margin $37.5 million, or 60% of net revenue, compared with $40.3 million, or 58% of net revenue in the prior year’s third quarter.

Still, the sale of the BWR subsidiary and its U.S. retail brands contributed to an Adjusted EBITDA loss of $10.2 million in Q3, compared with break-even one year earlier. Nonetheless, Willis insisted the ARIIX acquisition allows NBEV “to generate accelerated growth and profit contribution.”

Peer Grade: D

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NBEV ranks #31 out of 40 stocks in the Beverages category. In fairness, NBEV might need to be moved into another category, given the BWR sale and ARIIX acquisition plus the fact half of its portfolio is not in the beverage industry.

Industry Rank: B

The Beverages industry ranks #43 out of 123 stock categories and has an average POWR Rating of “B.”

Overall POWR Rating: C

NBEV is rated “C” for Neutral, as it is neither raising enthusiasm nor offending the olfactory senses.

Bottom Line

In the Q3 earnings call, Willis insisted NBEV was a work in progress, observing how the stock went “from around $0.19 on the OTC’s pinks when I started four years ago to more now with around 2 million shares of daily liquidity, a good institutional shareholder base starting point. It’s not a success and we are not arguing it is a success, but it doesn’t happen overnight. But it does happen when you have the kind of committed and quality team that has been there and done it before and has the perseverance as this management team does.”

Willis also predicted NBEV “will be positive in EBITDA” in Q4 after the ARIIX transaction is completed. At this point, investors would be wise to wait for the Q4 results to determine if NBEV is on the road to vibrancy or will be stuck as a perpetual work in progress. 

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NBEV shares were trading at $3.11 per share on Thursday morning, up $0.17 (+5.78%). Year-to-date, NBEV has gained 18.25%, versus a 1.88% rise in the benchmark S&P 500 index during the same period.

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About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More…

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