Vita Coco’s 22.3% return over the past six months has outpaced the S&P 500 by 19.7%, and its stock price has climbed to $33.62 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is it too late to buy COCO? Find out in our full research report, it’s free.
Why Does COCO Stock Spark Debate?
Founded in 2004 followed by a 2021 IPO, The Vita Coco Company (NASDAQ:COCO) offers coconut water products that are a natural way to quench thirst.
Two Things to Like:
1. Elevated Demand Drives Higher Sales Volumes
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Vita Coco’s average quarterly volume growth was a robust 6.1% over the last two years. This is good because meaningful volume growth is hard to come by in the stable consumer staples sector. 
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Vita Coco has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.3% over the last two years.
One Reason to be Careful:
Less Negotiating Power with Suppliers
Vita Coco is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage. On the other hand, it can grow faster because it’s working from a smaller revenue base and has a longer runway of untapped store chains to sell into.
Final Judgment
Vita Coco’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 32.9× forward price-to-earnings (or $33.62 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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