Three reasons to avoid ZVIA and buy a stock instead

The past six months have been a windfall for Zevia shareholders. The company’s stock price rose 119% to reach $2.08 per share. This was due in part to the solid quarterly results, and ahead of that, investors may be considering their next move.

Is now the time to buy Zevia or should you be cautious about adding it to your portfolio? Get the full stock story directly from our experienced analysts, free.

We’re glad investors made money, but we don’t have much confidence in Zevia. Here are three reasons why we’re not excited about ZVIA and one stock we’d rather own.

Why isn’t Zevia exciting?

Zevia (NYSE:ZVIA) is a beverage company primarily focused on sodas, but also active in energy drinks and teas.

1. Long-term sales growth is disappointing

Looking at a company’s long-term sales performance provides information about its quality. Any company can be successful in the short term, but a world-class company grows over years. Over the past three years, Zevia grew its revenue at a compound annual growth rate of 5.2%. This underperformed our consumer staples sector benchmark.

2. Less bargaining power with suppliers

Zevia is a small consumer staples company that is sometimes at a disadvantage compared to larger competitors as it benefits from economies of scale and bargaining advantages.

3. Operating losses sound the alarm

Operating margin is an important measure of profitability. Think of it as net income – the bottom line – without the impact of taxes and interest on debts that are less related to the fundamentals of the business.

In the defensive consumer staples industry, unprofitable public companies are rare. Unfortunately, Zevia has been one of them over the past two years, as its high costs contributed to an average operating margin of negative 16.6%.

Final verdict

Zevia isn’t a bad deal, but it’s not one of our top favorites. After the recent rally, the stock is trading at $2.08 per share (or 0.7x forward price-to-sales ratio). Regardless of price, the upside potential isn’t great compared to the potential downside potential – there are more exciting stocks to buy right now. We recommend you take a look at Cloudflare, one of our top software offerings that could be a success with edge computing.

Stocks we like more than Zevia

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