Over the past couple months the downhill trend has continued for the handful of available publicly traded wine names. In mid-August, all but Australian winemaker Treasury Wine Estates Limited (TSRYY) were down year to date. Treasury Wine, the largest winemaker available with a $5.8 billion market cap, now finds itself in negative territory, too, down 9% for the year.
It gets worse from there as wine names suffer in what no doubt is a recession. The Duckhorn Portfolio (NAPA) , the second-largest publicly traded winemaker with a $1.67 billion market cap, is down 37% year to date and now trades below its March 2021 initial public offering price of $15.Duckhorn trades at 23x and 21x 2023 and 2024 consensus estimates, respectively. Duckhorn shares have fallen 20% over the past month, likely due to a combination of JP Morgan's downgrade from "Buy" to "Neutral" (with a $19 price target), market volatility and disdain for luxury items in this economy.
Crimson Wine Group (CWGL) is down 23% year to date and continues to disappoint. Crimson Wine shares trade at just under 2x net current asset value (NCAV), and the balance sheet remains decent with $1.30 a share in net cash, but this company can't seem to break out of its value trap reputation. Company ownership of 723 vineyard acres, which is just over a square mile, has always gotten my attention (I've owned CWGL in the past) and along with net cash should put a floor under the stock price.
Vintage Wine Estates (VWE) is down 76% year to date and saw its shares slide 40% on Sept. 14 amid inventory concerns despite beating consensus estimates. I saw that as an opportunity and took a position, alongside an earlier foray into the company's warrants (VWEWW) . The warrants have a strike price of $11.50 and expire in June 2026; the stock closed at $2.89 on Thursday. VWE currently trades at 6x 2024 consensus estimates. Vintage Wine owns 946 vineyard acres and has another 1,854 acres under contract or long-term lease.
Why would anyone in their right mind consider taking a position in a wine stock in the midst of a recession? The answer for me is that if I can buy $1 of assets for 50 cents, I don't care how ugly the industry, company or economy is. Of course, I am presuming that there is a great deal of damage already priced in and that the market has overly punished those shares. That may be a big and dangerous presumption.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider CWGL and VWE to be micro-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
