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by Jerry Hall.
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Castle Brands stock in season?

Castle Brands 5-year stock chart by Yahoo Finance on Winewaves & More.
  • As a long-term long investor in Castle Brands, symbol ROX, I've been somewhat disappointed. Their brand portfolio includes Jefferson's bourbon, Gosling's Black Seal rum and non-alcohol Ginger Beer, Boru Vodka, Pallini liqueurs, Knappogue Castle and Clontarf Irish whiskys and more. After peaking at just over $2 in November 2014, the stock then entered a bear market and has recently been stuck in a trading range between 70 cents and a dollar. Back away to a five year view and you see lots of support for that valuation. Meanwhile, the strategic plan of management has been well executed leading to good top line growth and expense control. ROX is currently priced at approximately 2 times sales, while larger market cap companies command higher price/sales ratios*.
  • Timing suggests there may be an opportunity to make some money in this name between now and mid-November. In each of the last 3 years, being in this name during this period has been very rewarding. Even in 2015 while in a bear market, ROX posted a 41% gain from the August 24th low to the November 9th high. During the bull market years of 2013 and 14, the gains during this period were 233% (8/12-11/11) and 130% (8/4-11/10) respectively.
  • Inside buying has been impressive in ROX, dwarfing selling over the past several years. There was one small but significant insider sale in November 2014 that seems to have signaled the end of the first bull market in ROX. That bull market took it from about a quarter to 2 dollars, an 8 times run. Now ROX has based at around 80-85 cents with strong multi-year support.
  • Is Castle Brands a takeover candidate, public or private equity? Sales growth is hard to come by and Castle Brands has achieved it. They have been innovating around their core brands, resulting in such winners as Gosling's Ginger Beer, Jefferson's Ocean and more. Gosling's ginger beer is now large and growing double digits and Gosling's is unique in that the brand successfully spans alcohol and non-alcohol beverages. A larger alcohol beverage company would be able to reduce selling expenses by using existing sales force, marketing and distribution. ROX management and insiders seem to know financial engineering pretty well so this possibility is most likely on their radar. Billionaire investor Dr. Philip Frost is a significant stock holder.
  • On the other hand, profit-making seems to always get put off at Castle Brands, and at some point you want to see green. I think brand innovation and growth have been the correct priorities to date but time is running out for these efforts to get to the bottom line. Then one has to wonder about trends in the alcohol beverage business and whether the Jefferson's and Gosling's brands are peaking or whether they have plenty of runway ahead. Working against the possibility of a takeover is that it is typically larger market cap companies that get swallowed up, and maybe ROX is too small of a fish.
  • This is an interesting risk-reward set-up, bearing in mind that it is a high-risk, high-volatility, low-liquidity situation.
  • *Price/sales: Constellation Brands STZ 5.0, Diageo DEO 5.4, Brown-Forman BF.B 6.6, Boston Beer SAM 2.6. Source: Morningstar. Stock chart source: Yahoo Finance.