What a fantastic six months it’s been for Zevia. Shares of the company have skyrocketed 95.3%, hitting $2.09. This run-up might have investors contemplating their next move.

Is now the time to buy Zevia, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

We’re happy investors have made money, but we're cautious about Zevia. Here are three reasons why there are better opportunities than ZVIA and a stock we'd rather own.

Why Is Zevia Not Exciting?

With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE:ZVIA) is a better-for-you beverage company.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Zevia grew its sales at a sluggish 3.9% compounded annual growth rate. This was below our standard for the consumer staples sector.

2. Fewer Distribution Channels Limit its Ceiling

With $155 million in revenue over the past 12 months, Zevia is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

3. Operating Losses Sound the Alarms

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Unprofitable public companies are rare in the defensive consumer staples industry. Unfortunately, Zevia was one of them over the last two years as its high expenses contributed to an average operating margin of negative 16.4%.

Final Judgment

Zevia’s business quality ultimately falls short of our standards. After the recent surge, the stock trades at $2.09 per share (or 0.8× forward price-to-sales). The market typically values companies like Zevia based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of Zevia

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