Two for Tuesday

Written by GSCR Staff   
Tuesday, 05 June 2012 13:40

There are 2 stocks on the move today I find interesting.  One is in the midst of a serious breakout in terms of price and volume.  Still, the valuation remains attractive although the stock likely has a rise to the $4.75 level or so. The other is in the process of possibly being bought out by a group led by its Chairman, for premium to the current stock price.  If successful, investors will get a 12.5% pop from current levels.

Reed’s Inc. (NASDAQ – REED - $3.69) bills itself as the producer of the top-selling sodas in natural food markets nationwide.  As of the most recent quarter, the Company had products selling in over 12,000 natural foods markets and mainstream supermarkets.

What is cool and unique about Reed’s is its flagship, Ginger-focused beverages.  Apparently, ginger has a number of health properties and is the fastest growing spice sold in the U.S.  Ginger has been shown to treat motion sickness, aid in digestion, and is used as a cold remedy. The Company has six award-winning nonalcoholic Ginger Brews in its stable of offerings.  What makes them further unique in the beverage industry is the fact that they are brewed not manufactured.  Reed’s also uses fresh ginger, spices, and fruits in a brewing process that predates commercial soft drinks.

The Company’s revenue growth is impressive.  At last count, REED has grown quarterly sales by an average of 25% for the last 9 quarters. For 1Q12, REED recorded $6.5M in sales, a 27% rise from the same period in 2011.  In addition to introducing new products, and penetrating its existing, household name retail chain channels, the Company is rapidly deploying its products through numerous private label arrangements.  This should help buoy revenue even further in 2012.

At current levels, the stock is trading around 1.2x what we estimate could be $30M in sales this year, which is still very attractive.  The stock has hit new highs in recent days and is trading around 10x average daily volume the past few days as buyers hungry for stocks with strong numbers and new highs are in great demand.  We see no reason why the stock could not support a price of over $4.75 per share, which would equate to 1.7x our back of the envelope revenue estimate of $30M for CYE12.

Given the sudden, huge volume shift higher in conjunction with the stock price, we caution investors that this should be viewed as a trade.

The other company, Tix Corporation (NASDAQ – TIXC -$2.00), provides discount ticketing, discount dinner reservations, and branded event merchandising in the U.S.  The Chairman has delivered a proposal to the Board stating his offer to buy all the shares him and his family do not currently own, for $2.25 per share.  The Board is exploring options and reviewing the proposal. Two other buyout situations, WOLF and NOOF have been written about in these pages.  WOLF was a big success and NOOF has also worked out for shareholders, so far.  The TIXC situation, while not providing a great deal of upside, could be a nice quick return, if the deal is approved.  The current spread from the price of the offer and the current price indicates a little caution, but that is to be expected.

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