Crack open this stock for a steady stream of growth and 23% upside. By Todd Chanko

"You put the lime in the coconut and drink 'em both up..."

When Harry Nilsson had this unusual hit in 1971, Coca-Cola was the taste you never got tired of and Hawaiian Punch was being promoted as a healthy alternative, made with "seven real fruit juices!"

Today, coconut water comprises $1.2 billion of the estimated $300 billion U.S. soft drink market, offering consumers a beverage with no added sugars and "3.5 times the electrolytes of a leading sports drink," according to Mike Kirban, co-founder and executive chairman of Vita Coco.

The New York-based company's Tetra Paks -- four-sided paperboard cartons emblazoned with palm trees -- lead the coconut water pack, dominating the U.S. market with a 44% market share. Vita Coco stock, at $43.14, has nearly tripled since it went public in October 2021, in contrast to Coca-Cola's modest ascent of 30% over the period. Consumer tastes have changed dramatically since Coke's heyday, and Vita Coco has responded with a product mix that should quench investors' thirst for growth and reasonable value.

Most stories about stocks end with a section on risks, and these days most risks are tariffs. Yet the story of Vita Coco management's rapid response to the tariffs imposed on coconuts demands investors' attention upfront.

Vita Coco operates 17 coconut water factories in seven countries affected by U.S. tariff regimes in 2025: the Philippines, Indonesia, Malaysia, Thailand, Sri Lanka, Brazil, and Vietnam. The highest tariff targets Brazil, at 50%, and the lowest, the Philippines, at 19%. Once these were announced in July and April, respectively, the company quickly reshuffled its supply chain to mitigate the impact, supplying the U.S. market with coconut water from the Philippines and the European market with coconut water from Brazil.

By deploying this strategy, Vita Coco achieved a blended tariff rate of about 23% for coconut water shipped to the U.S. Kirban, who co-founded the company with Ira Liran in 2004, isn't content with market dominance in the U.S. "We're focused on scaling our international business," he told Barron's. "We have a strong business in the U.K., are building Germany, and are looking to expand to new countries over the next five years."

Recent data support such ambitions. The company's international sales jumped 48% year over year last quarter, in contrast to the still-enviable 35% growth rate for Americas' sales. Private-label sales grew 70% internationally against a 13% decline in the U.S. Vita Coco Coconut Water sales grew 32% in the U.K. and more than 200% in Germany through the first nine months of 2025.

With total sales growing at a five-year compound annual growth rate of 12.5% and free cash flow at 15%, Vita Coco reported adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $32.4 million in the third quarter, surpassing analyst estimates by 33%.

The company's long-term strategy extends beyond coconut-based beverages to include PWR LIFT, a protein-infused drink, and Ever & Ever aluminum-canned water. Vita Coco Treats, launched in April 2024, contributed most of the Other category's 182% growth in the third quarter, even as overall sales increased 37% year over year.

Based on current trends, management decided to raise full-year net sales guidance to between $580 million and $595 million, Chief Financial Officer Corey Baker said on the third-quarter earnings call. That is an increase of 4.4% over sales guidance issued on the first quarter's earnings call and 2.6% above its second-quarter forecast.

The increased guidance comes even after Vita Coco raised prices to diminish its tariff exposure. Combined with lower freight charges, this pricing power should enable the company to withstand any potential competition from Goya, Harmless Harvest, Ocean Spray, and other brands, the potential failure of bilateral trade negotiations with Brazil and other countries, and the possible rejection of U.S. tariff waivers for coconut water under a natural-resources exemption.

Nevertheless, Vita Coco confronts numerous risks, including competitive threats from beverage behemoths such as Coca-Cola, Keurig Dr Pepper, and PepsiCo, as well as the ever-present threat of consumers switching either brand allegiances, tastes, or worse, both. There is no assurance that the company would weather significant tariff increases. Lastly, climate change could severely impact coconut supplies, access to farms, and shipping routes.

Effectively debt-free and equipped with cash of about $204 million at the end of the third quarter, Vita Coco has engaged in modest share repurchases over the past 21 months, returning $22 million of capital to shareholders, the equivalent of about 39 cents per share. This yielded a modest 1.3% return to investors, with approximately $42 million remaining under the current repurchase authorization.

Vita Coco is enjoying strong earnings momentum, growing diluted earnings per share by 25% in the third quarter. The company's valuation is commensurate with other small-cap stocks, with shares trading at a forward 12-month price/earnings ratio of 32. Should management successfully execute its European and brand extension strategy, the market could push up its P/E multiple close to 40.

Layered over projected 2026 earnings of $1.32 per share, such multiple and earnings expansion would yield a 12-month price target of $51. A discounted cash-flow model using a working average cost of capital of 8.5% and perpetual free cash flow growth of 3.5% yields a $55 share price. The average of these two approaches is about $53, implying 23% upside from current levels.

Time to break out those tiny umbrellas?

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November 14, 2025 21:30 ET (02:30 GMT)

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