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Going flat…
I planned to write about National Beverage $FIZZ for the February issue of Watchlist Investing. I'd done a bit of research on the company's financials on Morningstar and liked what I saw.
That included high returns on capital and equity and little debt. I knew the company was majority-owned by its founder, something I look for in an investment. The company's market cap of about $4bn was relatively small. Better yet, the public float was only $1bn, which meant it was effectively out of reach of major investment firms and hedge funds. Then I started digging in.
The annual report gave me the first uneasy feeling. It was very promotional. Sure, some fancy graphics are okay, but I didn't get the sense management was talking to me like an owner.
I also learned that the company had an unusual management arrangement where the founder's company was paid 1% of sales to provide management to the company. There was a reason for this three decades ago but none for keeping it in place today. Something like that just feels wrong.
I also couldn't get a grasp on the company's unit volume. Unit sales of a company's product is an important metric to understand. How much are they producing? What are the costs/unit? How much invested capital is required per unit? I couldn't get at this data.
Complicating matters, I couldn't even find an investor relations contact!
My brain initially clung to the thought that I'd gone this far, I should keep going or "salvage" this time by turning to analyze the wider water and/or carbonated soft drink industry in general.
After some thought, I concluded that analyzing $KO, $PEP, $MNST, $KDP, and others wouldn't be the best use of my time. So I decided to stop and move to the next thing.
Sometimes you just have to fold an interesting hand.
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Stay rational! —Adam
P.S. Cover Photo by Chris Liverani on Unsplash
