My top speculative pick for 2020 is the fastest-growing brand in a relatively new industry that’s been sweeping the nation — Alkaline Water Company (WTER).
The bottled water business has grown from literally nothing to a massive $19 billion a year industry. Last year alone, nearly 14 billion gallons of bottled water were sold. That’s enough to fill more than 20,000 Olympic-sized pools.
Alkaline water has a pH above 7. It’s one of the latest developments to change the face of bottled water. And it’s projected to grow to an $18.24 billion industry of its own by 2025.
Proponents claim many health benefits; opponents claim there is little research to back up those claims. But to be perfectly honest, I’m not really concerned either way — as long as it’s not making anyone sick and I can make a profit.
And the profits are out certainly out there waiting for smart investors. CORE Water used to be just another bottled water brand. But then it hit $80 million in annual sales. Immediately after that, Keurig Dr. Pepper (KDP) bought the company in a deal worth $525 million. That’s a price to sales premium of 6.56.
And Alkaline Water Company is the best of all the options out there. The company has grown sales by double-digits every year in existence. And it’s barely spent a penny on marketing. But every cent it does spend comes back several times over in new sales.
But it’s not the past that’s got me so excited about this company. It’s the future. And that future looks very bright. Early in 2020, Alkaline Water Company will be merging with competitor AQUAhydrate — a brand founded by Sean “Diddy” Combs and Mark Wahlberg.
When the merger is complete, the combined company will be looking at 2020 full year revenues around $65 million. Now, compare that to the current market cap of the stock and you’ll see the massive disconnect that’s creating an incredible profit opportunity. Alkaline Water Company is trading at a valuation around $55 million. That’s $10 million less than the company will bring in this year in sales. And it’s a huge mismatch.
Other similar businesses carry a price to sales ratio between two and six. That means investors are willing to pay between $2 and $6 for every $1 of sales those companies make. But right now, investors can buy $1 of Alkaline Water Company’s sales for less than $0.85. That’s a disconnect that won’t last.
If Alkaline Water Company traded at a valuation relative to its peers, it would cost between two and three times more per share. A buyout offer from one of the bigger groups would likely give the company at least a five times sales valuation. That works out to a market cap of $325 million or over $6 per share. At the CORE Water multiple of 6.56, you’re talking about $427 million.
(Editor's note: Jason Williams picked cannabis-focused REIT, Innovative Industrial Properties (IIPR) as his conservative top stock for 2019; the shares are up 70%. Jason explains, "IIPR started 2019 with 11 medical cannabis properties across the U.S. It’s ending the year with 42. I still love it a year later. I can see it doubling or perhaps even tripling in the coming year.")
