Breaking Down Black Rifle Coffee’s Pros and Cons

BRC Inc. (NYSE:BRCC) is the official name of the entity better known as Black Rifle Coffee. The company recently completed its merger with Silverbox Engaged Merger Corp. As a result, Silverbox’s ticker changed to BRCC. In the wake of the merger, BRCC stock has rallied sharply.

The merger valued Black Rifle at $1.8 billion. That seemed fairly ambitious for  the company, which is expected to generate around $225 million of revenues annually. And now, after BRCC stock advanced from $10 to $16, its valuation has increased even more.

The good news for the owners of BRCC stock is that the company still obtains most of its  revenue from online channels. If and when Black Rifle is able to open many more physical shops, its sales growth could sharply accelerate. However, I do have some concerns about  the company.

Black Rifle’s Strengths: Its Branding and Alignment With the Military

As its name suggests, Black Rifle has an ideological viewpoint. The company is exploiting Starbucks’ (NASDAQ:SBUX), decision , made years ago, to ban the concealed carry of firearms in its stores.

Black Rifle, conversely, plays up its ties to right-wing political figures and is strongly loyal to the U.S. military. Conservative celebrities such as Donald Trump Jr. have spoken positively about Black Rifle Coffee.

With stocks such as Digital World Acquisition (NASDAQ:DWAC) and Rumble/ CF Acquisition Corp. VI (NASDAQ:CFVI) getting a great deal of attention from traders, it seems risky to bet against an openly pro-military consumer goods company.

And Black Rifle’s military ties run deep. Black Rifle makes a point of hiring veterans and touts that fact in its marketing initiatives. With the conflict in Ukraine getting worse, it seems likely that more and more attention will be paid to America’s armed forces. That trend could meaningfully boost  Black Rifle’s sales and increase traders’ interest in BRCC stock in the coming days and weeks.

Cons: Valuation and Some Uncertainty

One disadvantage of Black Rifle Coffee, which sells coffee and branded apparel through its website, is that it has focused on direct-to-consumer e-commerce.  In 2019, the company opened its first physical coffee shop in Texas, and Black Rifle has launched a few more physical stores since then. However, it’s still too early to tell whether the company can replicate its successful e-commerce business in physical stores To justify the current price of BRCC stock, the company will need to operate many more physical stores.

Switching gears, it’s telling that Citigroup (NYSE:C) only put a $20 price target and a “neutral” rating on Black Rifle Coffee when it recently started covering the shares. Citigroup, it’s worth considering, was an underwriter of and advisor for Black Rifle Coffee’s merger deal with Silverbox. Yet even Citi doesn’t seem particularly enthused about Black Rifle’s prospects following its shares’ recent rally.

At Citi’s $20 price target, Black Rifle Coffee would be worth roughly the same as Dutch Bros (NYSE:BROS). However, Dutch Bros is much farther along in terms of developing its brand and proving that its business model works nationally.

The Verdict on BRCC Stock

Black Rifle Coffee has an an interesting brand. The company’s top and bottom lines could surge if it generates significant revenue from its in-person stores. That said, there are enough negative points about BRCC stock  to keep me from viewing the shares as a clear buy.

If I was buying a coffee stock now, I’d seriously consider purchasing Dutch Bros’ shares. The latter company is targeting young consumers by trying to be the cool new upstart that is taking Starbucks down a peg.

Black Rifle’s partisan approach could certainly work. However, Dutch Bros seems to have a better chance of succeeding at this point, particularly since it already has more than 500 stores and has proven that its brand has wide-reaching appeal across the country.

If Black Rifle can open many successful  stores, the stock can advance. Otherwise, BRCC stock may be due for a pullback.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.