I first wrote about ABRW on June 12th 2016:
In that post I included the chart which showed ABRW at $1.75. That was just after it had traded up around $2, a 52 week high, having climbed from lows around just 20 cents as recently as February and March of this year.
Well, it seems there's some more promotional effort at work, and I have to say, it looks good. Seeking Alpha contributor John H. Ford just put up a blog posting on July 8th claiming that Bucha is a $7 stock for his nearly 2,000 followers. It was also shared on his Twitter account where he has over 3,700 following him.
Not bad eh!!! How often do you get to buy something that's worth $7 but only have to pay $2? Man, that's like someone offering to sell you a 2016 Dodge Challenger for just $10,000 instead of the regular price of $30,000+. I bet these cheap shares are gonna disappear pretty quick. What idiots would be selling something for $2 or less when its worth $7?
You know what they say though....when something sounds to good to be true, it usually is. So what's the deal with $ABRW? Did those who sold over 100,000 shares today at prices ranging from $1.81 - $2.05....did they just get hosed? Or did they do well to take the cash? According to Mr. Ford's blog the shares are now worth $7, that's not stated as opinion, its presented as fact. Did today's sellers not get the memo?
Okay....what's up. Why would someone say a stock trading around $2 is worth $7 if they're buying? Its seems to me that's the kind of thing you say when you're looking to sell. People will buy lots of things (often worthless) if they can be convinced they're screwing the seller.
"I hate to let this car go for $5,000 because its worth at least $10,000...maybe even $15,000....but I have no choice, I'm leaving the country in two days". You've probably seen or heard of ads like this on Craig's List.
Bucha is an OTC listed company trading on the pink sheets with the symbol ABRW. Its been getting a fair bit of hype lately as mentioned in my earlier posts. Pictures of Bucha's drinks have been popping up on twitter, someone even snapped a pic of them in a shopping cart.
@buchalive $abrw - Sunday night shopping getting ready for the work week. This should do it. #buchador
Obviously Bucha is a real company, no question about that. It reminds me somewhat of when Tiger Woods put energy drink Fuse "on his bag" and did a CNBC interview about his new endorsement deal. A lot of people stormed into Fuse Science's stock after that, pushing that OTC Pinkie stock to dollars. The symbol for Fuse Science is DROP, which is fitting. Just check what its trading for now and you'll understand why.
Nortel also springs to mind, many investors bought into that debacle because, seeing the phone they used at work sporting the Nortel logo, they knew it was real. Unfortunately what Nortel was "real" good at was losing money, and at accounting irregularities.
Of course after so many scandals with companies like Nortel, Enron and Worldcom to name just three....more stringent regulations were brought in with the Sarbanes-Oxley act of 2002. The act is designed to give investors more confidence in the financial data public companies release to shareholders and prospective investors.
Companies that trade in the United States on the NYSE, Nasdaq and OTC must conform to the act, typically referred to as Sab-Ox. Only companies with stocks trading OTC Pink are exempt. Oooops.
Companies that trade in the United States on the NYSE, Nasdaq and OTC must conform to the act, typically referred to as Sab-Ox. Only companies with stocks trading OTC Pink are exempt. Oooops.
Okay....but what is ABRW saying and why do guy's like Mr. Ford assert that buying ABRW around $2 is a steal, like that vehicle on Craig's List being given away at a fraction of its real value?
Its because of their acquisition of New Age Beverages and Xing Tea. The press release touts the acquisition as being a "$50 million+ new business combination". Mr. Ford's blog claims that New Age is generating $50 million annually. I assume that to be a revenue figure, but I don't know where to verify it. New Age, was a private company....not even a pink sheet listed one. As such they are not required to file financial statements like 10Qs and 10Ks....not even unaudited ones like ABRW.
I remember my late great father telling me about the 3 kinds of lies that exist. Lies, damn lies, and accounting.
I know this blog is going to get trashed. Pumpers don't like being called out....and that's what I think is going on here, and that's what I'm doing, I'm calling BS here. In my opinion this is just yet another OTC hype job.
Don't agree? Hey....fill your boots, load up on as many shares as you can afford, I'm not here to tell anyone how to play the markets, I'm just an old retail investor expressing his views on a blog. Read my disclaimer. If you really believe ABRW is a steal, then share this blog everywhere you can.....maybe you can buy even more and get the shares cheaper, like talking down the house you want to buy....Only an idiot raves about something they're buying, that just makes the sellers more reluctant and gets them asking for higher prices.
In my opinion this is a classic pump, and often times they work. Dumpers get lots of cash and buyers get lots of inflated shares, its a zero sum game boys and girls.
Disclosure: I have no position in ABRW long or short and no intention of ever initiating one.
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ReplyDeleteI don't know whether they're just the typical front loading p&d types....or something more insidious. I've seen too many outfits like stockreversals hyping so many diluting companies...and it strikes me that maybe some of these promoters have brokerage connections and know what's due to be pumped and dumped ahead of time.
DeleteSays Altitrade who has been pumping some garbage beverage company for weeks and weeks on end, they have an axe to grind. Its the stock market, grow up already... there are always buyers and sellers and bulls and bears on EVERY STOCK listed... period. Get a life and do your own damn investing.
ReplyDeleteIt does sound too good to be true.
ReplyDeletePart 1 of 2
As a guy who is long this stock, here is why it can be true. Read the following sentence several times. Absorb it in. Savor it.
Fair Market Value of a Business <<< Market Capitalization
This is how you buy Bucha for $900K (FMV of a business) add New Age Beverages for $20M (FMV of a business) and it computes to a market cap of nearly $40M.
I know the math doesn't add up? I'm no mathematician but $900K + $20M = is nowhere near $40M (approximately market cap currently).
Gonna say this again.
Fair Market Value of a Business <<< Market Capitalization
Their are many kinds of "value" and these two aren't equal. A business valuation is more about "what have you done for me lately" (trailing perspective) and a market capitalization is more about "what can you do for me" (forward looking). Plus, let's be honest, the stock market is over-inflated. wink
Here are some "comparables" of recent beverage businesses that have sold to illustrate my point.
http://i65.photobucket.com/albums/h231/NYKnuckleballer/Comps%201_zpswaz0mfv2.jpg
Above depicts a PS Ratio range of 0.37x (New Age Beverages) up to 2.9x (Coke buying 10% of Green Mountain Coffee), with an average PS Ratio of 1.35. This is a fairly tight range but skewed to the high side. Let's take Coke out of there though because they are buying partial interest or completing acquisitions in which they already had an interest.
http://i65.photobucket.com/albums/h231/NYKnuckleballer/2_zpsivsu7o27.jpg
The PS range tightens, ranging 0.37x (New Age Beverages) down to 2.05x (Isopure), with an average of 0.95x, or basically one-to-one. The second highest PS ratio is 1.22x. This is a much tighter range than before and much less "optimistic" as well.
Let's compare that with PS Ratios via market capitalization for publicly traded beverage companies. John H. Ford stated in his article, the impetus for your blog post, the "industry average" is 3x price-to-sales ratio.
Here are some of the comparables I use to illustrate:
http://i65.photobucket.com/albums/h231/NYKnuckleballer/Bucha%20Comps_zpsl88vaowq.jpg
The range goes from 0.7x (REED, Kombucha, recently did a second offering, crushed the stock price) up to nearly 20x for Long Island Iced Tea (LTEA), averaging over 7x. Let's remove Monster Beverage and LTEA as they're bull$hit comps. The average shrinks to 2.95x, right in line with the "reported" industry average of 3x.
Small companies that are growing fast (or have the potential to grow fast) and profitable companies (paying a divvy doesn't hurt, higher margins) tend to have the higher PS Ratios than the average, as they should.
Part 2 of 2
ReplyDeleteSo let's put those "average" numbers into the equation.
Fair Market Value of a Business <<< Market Capitalization
Average of 0.95x <<< Average of 3x
There is a model here - a highly repeatable, sustainable model - for value creation.
This model is no different than what the behemoths of the industry (Coke, Pepsi, AB-AmBev) are doing today. It's no different than the game plan that Interbrew utilized when they climbed the top of the mountain with Brent David Willis (BDW) as COO, leading the charge. It's also the same model he used at Cott's and ECig. It's been shown it greatly helps to have an appreciating market (no recessions, strict regulatory environment, etc.) when utilizing leverage to employ the "growth by acquisition" model.
Now, look at the current state of the beverage industry.
BDW has quoted POGO: "We have met the enemy and they are us." What did he mean by that? He said the only thing that can limit us (New Age Beverage Corp) is ourselves.
Per BDW, there are over 3,000 beverage companies in the United States. 99% of them will never exceed $3M in annual sales. Of those 1% that do exceed $3M in annual sales, 99% of them won't exceed $10M in annual sales.
The point I think BDW is trying to impart is that it's a target rich environment, especially for a company that has these three things going for it:
Expertise Top level execs are seasoned industry veterans (BDW has been the mountaintop with InBev, the LeBons didn't build a $50M+ company by being mentally slow, Carney (co-founder of Pizza Hut) is very likely a pretty savvy businessman).
Infrastructure The now-owned distribution network allows for scaling, which is a must have if one is going to make meaningful money in the industry. Combined over 17,400 outlets, 4,500 of which are DSD, wherein they control the shelf space, many small companies never have access to such platforms.
Leverage One of the biggest advantages the Cokes of the world have is they have leverage (and the aforementioned distribution network too). This is why big businesses are hurting little businesses. They can borrow for less and buy in volume. We've got some size now ($50M+ revenues) and we just got a new $10.7M credit facility at 3.7% (hard to get one's borrowing costs cheaper than that). Nothing supercharges the bottom line like leverage... in positive times.
So, we've got a tried-and-true game plan and an environment conducive to success. What could possibly go wrong?
BDW has stated the biggest risk here is execution risk.
They have to pick the right products. The consumer (millennials) are steering the market toward a more health conscious ecosystem. We're a healthy functional beverage company. Right place, right time?
Is Bucha a winner? Not 100% convinced it is but we bought it for $900K, which is a damn fine entry point.
IMO, there are many positive factors why this could be a billion dollar company. The biggest risks I see are growing too fast or an ill-timed recession.
Your theory that pumpers are hyping this stock for their own gain may be true but that doesn't necessarily mean that ABRW / BUCHA / New Age Beverage Corp. isn't an undervalued stock (I think it's worth $100M today). ABRW could be being hyped and undervalued at the same time... the two are not mutually exclusive.
NJM, thanks for sharing your thoughts. I'm not convinced, but there's no point arguing, differences of opinion are required in teh public markets, otherwise everyone would be buying and nobody selling or vice versa. When it comes to OTC pinkie stocks trading on the gray market....I think undervalued "gems" are rarer than the proverbial needle in a haystack.
ReplyDeleteBut given that I have no skin in the game one way or another I will wish you luck and hope for longs that ABRW is an exception.
and look at the PPS now
ReplyDeleteCongrats on the pump
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