We examine a mission-driven coffee company that is going public through a SPAC deal and ask if it is a good buy today in a crowded market?
Nov. 12, 2021
SilverBox Engaged Merger Corp I (NASDAQ: SBEA) is a special purpose acquisition company (SPAC) that recently announced plans to merge with premium company Black Rifle Coffee Company, which sent the former's share price soaring by 24%.
Black Rifle Coffee Company (BRCC) is a mission-driven company that serves coffee to active military members, veterans, and "those who love America". However, is this niche coffee company a good buy today?
The bull case for Black Rifle Coffee Company:
BRCC is led by founder and CEO Evan Hafer, who is a U.S. Army veteran. The company has a loyal following with 1.9 million cumulative customers and a significant social media presence with 9 million followers. This following surpasses that of well-known brands such as Lululemon, and in addition, it has a high net promoter score of 78, which demonstrates its customers' satisfaction.
BRCC estimates that its total addressable market is approximately $45 billion, which leaves vast room for expansion. The company grew revenue by 67% in 2020, reaching $164 million with gross margins of 42%. It currently makes the majority of its revenue online but has other avenues such as wholesale with its products sold in Walmart along with merchandise and a subscription business that has over 270,000 subscribers.
The company expects to grow by 40% this year and use the cash injection of $225 million for two key areas. Firstly, it will be used to help grow its coffee stores from 7 today to reach 78 by 2023 in a bid to fulfill its goal of hiring 10,000 veterans. Secondly, it will focus on its ready-to-drink segment, which is already stocked in 40,000 stores. If it can execute and eat into the market share of established players, it provides an exciting opportunity.
Unlike many other SPAC deals, the sponsors also have an arrangement with stock subject to forfeiture if the company does not hit specific growth and returns. The founders will also keep a stake in the company, which aligns their interests with shareholders.
The bear case for Black Rifle Coffee Company:
The most considerable risk to BRCC is the fierce competition from large coffee chains such as Starbucks and Dunkin' along with "mom-and-pop" stores, and as it expands, it may face headwinds.
Despite large upside potential for the company in the U.S., it is unlikely ever to reach the heights of coffee giant Starbucks due to its branding and is unlikely to resonate with people internationally. The company has also faced controversy with Hafer even forced to distance the company from extremists.
So, should I buy Black Rifle stock?:
Despite some promise, the company operates in a crowded marketplace and has yet to scale significantly domestically, leaving many unanswered questions and risks. Furthermore, at MyWallSt, we prefer to wait at least two quarters prior to investing.
Quickfire round:
When was BRCC founded?
It was founded in 2014.
Where is BRCC headquartered?
It is headquartered in Salt Lake City, Utah.
What are BRCC top sellers?
Its top sellers include coffee called 'Freedom Roast Coffee' and 'AK-47 Espresso Blend'
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