Over the past six months, Vita Coco has been a great trade, beating the S&P 500 by 11%. Its stock price has climbed to $64.15, representing a healthy 23.9% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is COCO a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Is COCO a Good Business?
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.
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 of 15.2% over the last two years has beaten the competition by a long shot. This is great because companies with significant volume growth are needles in a haystack in the stable consumer staples sector. 
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Vita Coco’s EPS grew at 42.9% compounded annual growth rate over the last three years, higher than its 14.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Increasing Free Cash Flow Margin Juices Financials
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.
As you can see below, Vita Coco’s margin expanded by 12.9 percentage points over the last year. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Vita Coco’s free cash flow margin for the trailing 12 months was 17.6%.
Final Judgment
These are just a few reasons why we think Vita Coco is one of the best consumer staples companies out there, and with its shares beating the market recently, the stock trades at 32× forward P/E (or $64.15 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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