Shares of Winc Inc. (NYSE-Amer: WBEV, $WBEV) soared by 108% intraday on Thursday to a multi-month high of $6.55. Although the wild session closed with shares at $4.65, they popped higher again on Friday, opening at $5.02 a share, gains representing a more than 60% increase since the start of the week. With no news on the wires, it may be time to pay attention to the adage, “volume precedes price.” In this instance, though, both are moving higher, making investment consideration more compelling. (share price at open on 4/22/22)
In fact, it may be an opportune time to catch $WBEV shares at a price Craig-Hallum Capital Group analysts consider appreciably undervalued. Why? Because a quick search about WBEV showed a potentially enormous revenue-generating event not yet covered- its Summer Water Rose will be the exclusive wine sold at the Governors Ball June 10-12th at Citi Field in NYC.
Indeed, it’s an undivided presence that could send revenues for the quarter significantly higher and exponentially increase the popularity of Summer Water in one of the largest U.S. markets. The Governors Ball is a dynamic event combining the best of music, art, food, entertainment, and experiences under one massive venue at Citi Field In New York City.
Billed as an event unlike any other, built by New Yorkers for New Yorkers, the festival features 4 stages and over 70 acts, a food program that features the City’s best eats, visual artists from NYC and around the world, and a beverage program that features popular name brands, craft, spirits, cocktail concoctions, and plenty of non-alcoholic options.
Utilizing a one-of-a-kind 360° festival layout prevents sound bleed and eliminates long walks between stages. Further, the Ball includes art installations in the form of mural towers, huge statues, high-flying inflatables, and unannounced pop-up performances that promotors say will surprise and delight. Put simply, the event transforms Citi Field into a one-of-a-kind festival experience.
Still, the event’s highlight from an investor’s perspective could be that WBEV’s Summer Water Rose will be the only wine beverage sold at the event. And that could have a significant impact on Winc going forward.
Event Could Expose Valuation Disconnect
In fact, it could further expose a valuation disconnect already identified by Craig-Hallum Capital Group, which reiterated its BUY rating and $13 price target for Winc Beverage, Inc. That puts a more than 185% expected gain in the crosshairs from current levels.
Keep in mind that their bullish forecast likely didn’t include Summer Water’s exclusive presence at the Governors Ball. And with potentially a million or more visitors throughout the event, the revenue-generating impact from sales could be substantial. Moreover, its placement is an advertisement that could make the brand more popular than it already is.
That’s excellent news that should fuel already impressive growth. In fact, Q4 revenues surpassed Craig-Hallums’ prior forecast, with net sales jumping 10% y/y to $18.5M, well higher than its $17.3M estimate. Growth came from the right places, driven by better-than-expected increases in Winc’s direct-to-consumer channel. In addition, the analyst was impressed by WBEV’s core brands delivering 47% growth in case volume sold in 2021 and the number of retail accounts carrying Winc’s brands in the wholesale channel up roughly 115% y/y to nearly 17,000.
Moreover, accelerating operational performance and progress made to maximize opportunities in its wholesale distribution channel also led the analyst to suggest that the stock represents an attractive risk/reward at current levels. He noted that at just 0.6x CY22 EV/sales, the market is missing this opportunity and is valuing Winc as if it were just another wine subscription business. Because of that, he noted that shares are valued as a kind of “free option” on its high growth wholesale business at current levels. He may be right.
Core Brands Show Impressive Growth
Digging deeper, WBEV’s five core brands grew 47% y/y in 2021, and cases sold surged by 167,000, up nearly 50% y/y in 2021. The even better news is that its core brands, led by Summer Water, have significant runway ahead of them and have higher gross margins than the company average. Hallum expects these core brands to continue scaling and increasing as a percentage of total company sales.
Notably, on the valuation front, its report suggests the opportunity is compelling at 0.6x CY22 EV/sales, adding that the market ignores the early signs that Winc is on the verge of profitably scaling its wholesale business. Moreover, its $13 price target is based on 2.5x CY22 EV/sales, a discount to peers at 5.1x. This discount reflects that Winc is not yet profitable; however, they believe that Winc’s rapidly growing wholesale business has the company well-positioned to scale into its long-term target of adjusted EBITDA margins of 15-20%.
Thus, it’s likely that investors that picked up on the Governors Ball presence are taking advantage of a valuation disconnect too good to ignore, presuming, perhaps correctly, that sales and brand exposure from that event could have a powerful revenue-generating impact for the remainder of this year.
Undoubtedly, this past week, investors seem to think that’s the case. And with WBEV stock off its weekly highs and news of the placement likely imminent, trading ahead of the announcement, which should be considered a catalyst, is a wise and timely consideration.
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