Black Rifle Coffee (NYSE:BRCC) stock emerged from a special purpose acquisition company blank-check merger with SilverBox Engaged Merger I on Feb. 10.
The stock’s sailing has been relatively smooth. Shares are up over 18% since their debut, despite a down market.
BRC is a coffee roaster based in Salt Lake City and with offices in San Antonio. Black Rifle was founded by special operations veterans about six years ago. It roasts and sells packaged coffee with a military theme and offers themed merchandise. Just the thing for when you want to get your war on.
The stock opened March 4 at about $17.50. That’s a market cap of $767 million on estimated 2021 sales of $221 million. The company lost about $8 million last year but made $4 million in 2020.
Can we interest you in a cup, in a bag, in a Coffee or Die T-shirt?
Selling Covfefe
Black Rifle is offering a political statement as much as coffee. Right wing politics has become a lifestyle, like your grandma’s tie-dyed shirt. CEO Evan Hafer, born in 1977, and his team are looking to cash in.
The stock had a great debut, rising 23% the first day, as investors who also like Digital World Acquisition Corp (NASDAQ:DWAC) piled into the name on word that it would merge with Trump Media & Technology Group.
What these investors are looking for is more than a subscription coffee business. The company raised $225 million through the SPAC and is looking to open 1,300 coffee shops, starting in Texas.
Military bases like Fort Hood and right-wing suburban neighborhoods are the first obvious targets. The company now has eight stores, with plans to open near Houston and Dallas soon. There are also stores near Fort Campbell in Tennessee, the Hunter Army Airfield in Georgia, Eglin Air Base in Florida, and others.
Distribution is through national retailers like Walmart (NYSE:WMT) and stores frequented by hunters such as Bass Pro Shops and Cabela’s. I could easily see Black Rifle opening shops inside those stores, or in nearby locations.
The idea is to become a right-wing Starbucks (NASDAQ:SBUX), a place where fans of guns and conservative causes can feel comfortable and create community.
Should You Invest?
Currently there are four analysts following BRCC stock, and three say buy it. The market cap is about 3x sales, similar to the Starbucks ratio but well short of Dutch Bros (NYSE:BROS), the drive-through coffee chain that debuted last September. Dutch Bros is up 25% since its IPO, with a market cap 15x its sales.
Optimists like our Chris Tyler say Black Rifle is not a train you want to get in front of. There’s a better reason for optimism. The corporate parent behind the scenes is Authentic Brands, the branding company that pulled its IPO in January and is valued at $12.7 billion. This gives the whole deal credibility. Given Authentic’s deal with Shaquille O’Neal, you might even call Black Rifle a Love Shaq.
The Bottom Line
If it were not for Authentic’s participation, I wouldn’t touch Black Rifle with an M-15.
But intelligent branding goes a long way in today’s market.
I still have two concerns. First, I’d like the company to expand its product line. Second, it needs to expand the niche. Political activism has a long history of inspiring corporate launches, but what the successes have in common is management that looks beyond the fad toward the broad market.
If the heat in American politics dissipates, Black Rifle could be stuck on an island. Coffee and merchandise are also limited in their appeal. Mining their niche successfully, and creating an investment opportunity, requires a bigger business plan.
If Authentic can help create one, however, this might be interesting.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.