Florida-based Splash Beverage Group (SBEV) moved up 22 spots in Barchart’s Bottom 100 Stocks to Buy on Monday to 59th. That’s generally not a good thing. You don’t want to be on this list if you can help it.
It’s been a while since I’ve written about one of the bottom 100 stocks to buy—too many money losers with suspect business models. At least with many of Barchart’s Top 100 Stocks to Buy, they’ve made the list because investors can’t get enough of them, not to mention, they’re often very profitable.
But, I’m in a small-cap frame of mind these days, so the microcap maker of alcoholic and non-alcoholic beverages caught my attention.
As I said, you don’t make the bottom 100 without good reason. SBEV stock has declined by 75% over the past year, with the majority of the losses occurring in the past month.
To put it simply, this is not Berkshire Hathaway (BRK.B). You have no business owning Splash stock if you have even the slightest hint of risk aversion.
That said, many investors likely shied away from Monster Beverage (MNST) when it was known as Hansen Natural in April 2002, as the California company created the smash-hit energy drink that swept the beverage industry by storm. MNST stock has delivered a compound annual growth rate (CAGR) of nearly 38% over the past 23 years.
Need I say more?
Splash Beverage’s Obvious Warts
Should this $4.4 million market cap be a public company? That’s not for me to decide, but I can’t help thinking this is a business with a lot of sizzle and very little steak.
The origin of Splash appears to date back to 1992, according to Renaissance Capital, the leading source for IPO information and data. The company’s June 2021 prospectus states that it was founded to acquire the North American rights for TapoutT performance beverages from Authentic Brands.
Robert Nistico, a beverage industry veteran and the fifth employee at Red Bull, was hired as CEO in 2020 to grow both the TapouT and the SALT flavored tequila brands.
The 2023 10-K states that Splash pays a 6% royalty to Authentic Brands on TapouT sales in North America (including U.S. territories and Military Bases), the United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile, and Guatemala.
The annual minimum it must pay is $660,000. The license expires Dec. 31, 2025.
The company announced on April 1 that it couldn’t file its 10-K for 2024. Last August, Authentic Brands filed a complaint against the company, arguing that Splash had breached the licensing agreement. As a result, Authentic Brands moved to terminate the agreement, seeking $1.4 million in damages.
In mid-April, Splash received a noncompliance notice from the NYSE American stock exchange for failing to file its 10-K in a timely manner. In addition, the exchange moved to delist because it violated Sections 1003(a)(i–iii) of its listing requirements, which states companies losing money in their five most recent fiscal years must maintain a minimum stockholders’ equity of $6 million.
While this issue should come to a resolution, good or bad, by mid-July, it’s hard to fathom why the shares jumped to $8 by the third week of April on the completion of its 1-40 reverse stock split. They’ve since fallen to under $3.
You’ve got several serious issues: a ongoing delisting threat, a failure to file a 10-K, it finished Q3 2024 (the latest available report) with an operating loss of $9.6 million on $3.6 million in revenue, an accumulated deficit of $146.8 million, and lastly, sales that have fallen of a cliff.
Hardly the hallmark of a business on the rise.
Why Consider Taking a Flyer on Splash Stock?
The company has four brands: Chispo tequila, Pulpoloco sangria, Copa di Vino premium wine, and SALT agave tequila. Between Q3 2022 and Q3 2024, they generated an average of $1.1 million per quarter.
While that’s not massive, it’s something to build off, but they probably should jettison one or two of the brands to focus on those with the most potential. Four is too many for a company hanging on by a thread for its financial life.
Splash acquired Copa di Vino in December 2020 for $2 million cash, a $2 million promissory note, and potential stock based on an earn-out agreement. That puts it at the top of the list for keepers.
The other three brands have been developed in-house. Tequila remains popular with consumers, so they should consider keeping both tequila brands and dropping the sangria.
The real problem lies with its Qplash e-commerce beverage business. The name is terrible. Worse, its website says it sells cleaning supplies along with non-proprietary water, juice, soda, and coffee.
These two segments don’t go together. However, Qplash was the big revenue generator. Over the same two-year period from above, the e-commerce business averaged $2.2 million in quarterly revenue. That’s despite only $400,000 in sales in the first three quarters of 2024 due to low inventories caused by Splash’s cash crunch. Qplash has to go.
The Bottom Line
As I write this, the shares trade around $2.50. That’s $0.06 pre-reverse split. It is the definition of a penny stock.
On June 10, the company announced that it had issued 1,000 Series A preferred shares, each valued at $1,000, to CEO Robert Nistico. These preferred shares carry 25,000 votes each, totalling 25 million.
As of Nov. 14, 2024, the company had 61,711,017 shares outstanding. That’s 1.54 million shares after the reverse split. The company’s board clearly believes Nistico must be retained to have any chance of turning this around. Hence, the sweetheart offering.
On February 3, the company announced that it had a letter of intent to acquire Western Son Vodka, a Texas craft, flavored vodka brand, in a cash-and-stock transaction (10% cash and 90% stock). Splash didn’t reveal any dollar amounts. They’re likely minimal.
Splash is pushing ahead with a brand-led revival. I don’t know if it will work or not, but at $2.50 a share, you’re buying a lottery ticket.
That’s better than some on Barchart’s bottom 100 stocks to buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
