I feel like the market has taken to accentuating my wrongs more than my rights as of late. Maybe it is because so many of the recent moves have been huge ones, and we tend to notice losers more than winners in our portfolio. Still, it doesn't make those days feel any better when you "notice" that loser.
Sometimes, it simply won't let itself go unnoticed. That's the case for me Tuesday with the Alkaline Water Company ( WTER) . After speaking with the company, I came away with a pretty good feeling. There's a lot of new products, it appeared to have picked up momentum from Covid with big potential for long-term consumers rather than just panic buyers from the spring, and the entire cannabidiol, or CBD, market waits to be harvested. While those things may remain the case with lots of good things ahead, the second-quarter earnings weren't anything that is going to excite investors. Maybe more challenging for bulls is the guidance for the remainder of the year may not look quite as strong at first glance as it should probably be perceived.
The second quarter saw revenue of $10.76 million with a loss of $0.06 per share, a far cry from Wall Street's $14.55 million revenue consensus. The earnings per share number also came up four cents short. The first quarter saw benefits from Covid, giving the company $25 million in revenue for the first half of the year, representing growth of 21%. For the second half of the year, management anticipates revenue of $23 million to $27 million, providing a midpoint equal to the first half of the year. There should be some optimism in this number, given it is similar to the first six months of the year, without the benefit of a Covid bump. Granted, the consensus for the year was $58.63 million, so even after removing this quarter's nearly $4 million miss, the full year guide is still lower by roughly $5 million compared to consensus.
Either Wall Street is off with its models, or the company needs to do a better job communicating expectations for growth and revenue. Small caps and microcaps, especially those in growth mode, can't afford to be 10% or 20% below consensus forecasts. Unfortunately, after talking with the company, my takeaway was growth would be in the mid-20% range for the current fiscal year with the potential to see a tick higher next year with the CBD lines showing strong growth. Guidance for growth of 17% to 27% for the remainder of this year call that into question. WTER needs to perform at the high-end of the range, something we simply haven't seen.
With all that said, this is still a long-term thesis for me. I'm not looking for a quick pop this week, this month, or even this year. My thinking is rooted in the CBD category growth that we won't see until calendar year 2021 and 2022, with an eye on the company eventually be being bought in calendar year 2022. If the company grows revenue by 25% for the remainder of fiscal 2021, fiscal 2022, and the first half of fiscal 2023, it will put revenue in the $75 million to $80 million range by the summer of 2022 (I hate when fiscal years don't match calendar years). That's the sweet spot for beverage buyouts.
I have added to my position, but not aggressively yet. I want to see how the market reacts over the next few days. Although my long-term thesis remains intact, there's no denying my entry was early, poorly timed, and wrong. No excuses. That one is on me.
And in this market, I can say unequivocally, it hurts.
