BellRing brands (BRBR, Financial) is one of the most popular fitness drink and snack providers in the U.S., with a 7.9% household penetration. People are becoming ever more health conscious, and protein supplements are now a huge business worth over $20 billion in the U.S. alone. This industry is expected to grow at a 8.5% CAGR up until 2030, and BellRing Brands is poised to ride this trend, as they own some of the most popular brands.
The company went public in 2019 as part of a spin off from St. Louis-based Post Holdings Inc. (POST, Financial). The stock hit the market at $14 per share and now trades at ~$24, representing a significant increase even after a large pullback in September 2021.
Business model
BellRing Brands owns three popular brands: Premier Protein, Dymatize and PowerBar.
Premier Protein is the company’s most popular product which makes up a substantial 81% of net sales. This is followed by Dymatize, which has a 15% stake, and the Other category, which makes up 4% of sales and includes PowerBar. Their Premier Protein brand is extremely popular, which is a positive, but the high concentration of sales from a single product does add a risk to the business model.
By geography, 89% of sales are from the U.S. with just 11% international.
The company has recently experienced some capacity constraints for its Premier Protein drink and urges investors it is transitory. This could be one reason the stock price pulled back in April.
Financials
BellRing brands generated revenue of $1.25 billion for the full year 2021, up 26% year-over-year. Gross profit was up slightly from $338 million to $386 million, while free cash flow jumped a meteoric 135% to $224 million over the same period.
BellRing Brands generates a 30% gross margin and a healthy 13% operating margin. These margins have dipped slightly since the end of 2019 but are now similar to 2018 levels.
The company has a fairly leveraged balance sheet with $153 million in cash and a very high $418 million in long-term debt. However, they only have $116 million is current debt and strong free cash flow, thus I don't believe this is a major issue.
BellRing Brands recently authorized a $50 million share repurchase, which shows management has confidence in the company’s prospects.
Valuation
In terms of valuation, BellRing Brands trades at a price-earnings ratio of 36.5, which is fairly high given the current market conditions.
The GF Value chart, a unique intrinsic value estimate from GuruFocus, indicates the stock is modestly overvalued.
Overall, BellRing Brands looks like a strong company in a growing market. The only issue is the valuation, which does seem a little spicy right now especially given the other opportunities in the market.
