Don't Try to Catch Falling Knives - NAPA??
Let’s take a quick look at The Duckhorn Portfolio - NAPA - $6
Within the first week of my investment career I was told the old adage “do not try to catch falling knives”. I have spent the last 30+ years ignoring that advice, but NAPA even scares me a little.
If you use the 10 year chart on Seeking Alpha, the stock seems to be descending consistently at a 45 degree angle. I think they call this chart pattern: Yikes, lookout below. A sharp private equity group brought NAPA public during the pandemic at $15, gunned the new deal to $24, and has seen the stock decline to $6 in a straight line.
NAPA sells premium wine. I guess $20+ per bottle is considered premium, but as a non-drinker I have absolutely no knowledge of the wine business. I am at a disadvantage looking at liquor stocks.
But the damn thing sells at 10x earnings and under book value, so maybe I need to start drinking.
Beware, the company reports fiscal 2024 on October 7th, NAPA is a July year end company. I guess they might even make a new 2025 forecast.
There are plenty of big positives and negatives.
The positives:
The valuation
Three smart value guys own this stock, Select Equity (although they have begun selling part of their position), River Road, and First Eagle.
The new CEO, Deirdre Mahlan, owns 460,000 shares. She used to run North America for Diageo, and was once the Diageo CFO.
Brown Forman now owns 20% of NAPA, after selling part of their US wine business to NAPA
The private equity guys still own 40%, and are looking a little bit like crooks
I wish I could tell you their wine tastes good, but I have no idea
Folks bought a lot of wine during the pandemic, and maybe recent poor results are just a rebalancing of personal inventory
The negatives:
The large Sonoma-Cutrer acquisition seemed poorly timed, and forced the longtime NAPA CEO to leave.
The balance sheet is a little strange. There is a big wine inventory, and a little more debt than you would prefer to see. I want to see the year end debt footnote.
NAPA has been very vague about “changing its distribution system”. This can often be a big red flag.
It looks like NAPA moved up a product release date to bolster the 3rd quarter
Crimson Wine - CWGL - $6 - always seemed like a value stock, but has never done anything positive
Are premium wine sales cyclical? I guess we will find out.
NAPA is a prime tax loss selling candidate
I want to believe, but let’s see the year end numbers and make a final decision.