BellRing Brands (BRBR): Strong Competitive Position Priced In

Investment Thesis

BellRing Brands (NYSE:BRBR) is a hold for me. The strong competitive position and bright market outlook seem to have been priced in quite well already.

Introducing BellRing Brands

BellRing Brands is a fast-growing player in the convenient nutrition category, aiming to bring nutrition to the mainstream consumer. Its business was formed from three acquisitions by Post Holdings Premier Protein, Dymatize, and PowerBar. Under these brands, they market and sell ready-to-drink protein shakes and other RTD beverages, powders, and nutrition bars.

Its customers are predominantly club stores, online retailers, specialty retailers, convenience stores, and distributors. Their largest customers, Costco (COST) and Walmart (WMT), accounted for approximately 65.3% of their net sales.

Relating to BellRing Brands, in this article I will analyze:

• Its historical performance
• Factors boosting future growth
• Competitors
• Valuation and growth compared to competitors
• My overall take on BellRing Brands

Historical performance

BellRing Brands achieves robust growth rates that are mainly driven by mainstream health and wellness trends, which have only accelerated throughout the COVID-19 pandemic:

Historical performance (million USD)

	last 4 Quarters	Sep-21	Sep-20	Sep-19
Sales	1,304	1,247	988	854
Sales growth	24%	26%	16%	–
Gross income	386.6	386.2	338	311.8
Gross income growth	14%	14%	8%	–
Gross Margin	30%	31%	34%	36%
Net income	28.7	27.6	23.5	0
Net income growth	32%	17%	–	–

Source: Seeking Alpha

Gross margin decreased due to higher dairy protein costs and increased freight, according to Q2 2022 Earnings Call discussion. The “real” sales growth would be lower because the increase is partly a result of inflated product prices. Net income growth has increased due to the increase in sales combined with reduced marketing and improved SG&A leverage.

Factors influencing future growth

A robust market outlook

Along with the right workout routine, increasing daily protein intake has been shown to aid in weight loss and muscle growth. But it can be challenging to consume over many grams of protein daily from whole, nutritious foods, especially if you have dietary restrictions like veganism or lactose intolerance. Ready-to-drink protein shakes are a good alternative to include more protein in someone’s day, especially if you’re on the go. The main benefit of these drinks is that they’re convenient, you can easily achieve large amounts grams of protein without having to cook or even chew. The same goes not only for protein but nutrition in general. Due to increasing awareness for a healthier lifestyle combined with the need for convenience of a fitting solution, I expect that the demand for convenient nutrition such as the ready-to-drink shakes to keep increasing at a robust rate. Furthermore, according to the Q2 2022 Earnings Call discussion, management believes that both the ready-to-drink and ready-to-mix segments are highly underpenetrated with only 26% and 14% household penetration respectively. In other words, long-term opportunities left.

Leading brands

Premier Protein and Dymatize are two of its top brands that cater to various consumer segments. Premier Protein was one of the first widely recognized ready-to-drink brands, and its mission was to improve public health by making delicious nutrition accessible to all. Although Premier Protein is a 1 billion dollar brand, less than 8% of households have access to it, which presents a rather nice long-term opportunity.

I expect that the most essential attributes to thrive in this market are the taste of the products, the convenience of using the product, and the appeal of the overall product/brand.

Research on Amazon shows that management doesn’t lie when they say that the brand Dymatize is appealing to mainstream athletes. 86% of reviews for its The Dymatize Nutrition ISO 100 product are 5 out 5 stars, based on roughly 1500 reviews. The reviewers comment on the likable taste of the product and the convenience of using it New flavors Dymatize ISO100 flavors, such as Dunkin’, Cappuccino, and Mocha Latte drive a large part of Dymatize’s growth, according to its Q2 2022 earnings call discussion. Its main brand Premier Protein receives the same level of appreciation.

I believe that BellRing Brands has a strong competitive position to take advantage of the opportunities in the convenient nutrition market. Thus, I believe that double-digit growth rates are reasonable for the coming years.

Competitors

The competition in the convenient nutrition market is rather intense, with many different types of suppliers selling respected ready-to-drink (protein) products. An Amazon search action for “Protein shake” confirms this. On the other hand, the search action shows that a few Premier Protein drinks are the absolute best-sellers, which confirms the leading position for the brand.

Valuation and final take

Let’s take a look at BellRing Brands’ basic stats and compare it to another player in the ready-to-drink market:

Stock	Price To Sales	Forward P/E	Revenue Growth Rate (3Y) in %	Free Cash Flow margin in %
BellRing Brands	2.54	22.37	14.65	12.86
Herbalife Nutrition	0.41	4.25	5.86	5.7

Source: Reuters

Herbalife Nutrition (NYSE: HLF) is used here as a benchmark. Herbalife offers nutrition solutions and more specifically protein shakes as well. It can be noted that BellRing Brands is rather expensively valued. The current S&P 500 company median P/E ratio hovers around 15, roughly 7.5 lower than BellRing Brands’ forward P/E. Herbalife is significantly cheaper as well. However, from the table, it can be observed that the revenue growth rates and cash flow margin of BellRing Brands are excellent. Combined with leading, strong-performing products and bright future growth opportunities, the market seems to have priced in the strong competitive position of the company. A better question to ask is if this higher price is worth it. In my humble opinion, this company is a hold for me. While I do like its competitive position and performance statistics, I do think its higher valuation is already fair enough as the growth numbers are robust but nothing too crazy. The price of the stock would have to decline more for me in order to consider it a good buying opportunity.