EnWave (ENW, TSX-V): An Equipment Manufacturer and Royalty Company With A Bite!

America's $145 Billion Snack Business

In America alone snack food sales total $145 billion annually, and "better for you" snack food brands have been getting gobbled up by majors. Campbell Soup, Hershey, Kellogg's, and PepsiCo have all spent between $250 million and $4.6 billion acquiring healthy snack food brands in recent years. And while consumers tastes can change quickly, we like trying lots of different things, powerful concepts that last are very valuable.

I'm betting Moon Cheese will be one of those rare powerful concepts that sticks with consumers. The trend toward "better for you" snacking is obvious and well underway. Consumers are hungry for natural/organic food products made with simpler ingredients, high in protein and low in sugar - that's Moon Cheese!

Buy yourself a bag or next time your shopping, see what you think.

HERE'S THE DEAL: It might be a stretch but with a market cap of $145 million and a working capital surplus of $24 million we can almost justify EnWave's valuation purely off their Moon Cheese brand. Financial terms of the acquisitions made by majors normally aren't disclosed so exact valuations are tough to pin down, but in one recent deal PepsiCo paid about 11 x EBITDA.

EnWave is calling for Moon Cheese to be EBITDA positive in H2 2021. Assuming gross margins stay the same (between 25% and 30%) and sales continue rising toward $40 million, using PepsiCo's purchase price of 11 x EBITDA, we might conclude the Moon Cheese brand alone is worth $50 to $100 million. Plus new flavors for Moon Cheese and new "better for you" snack foods from NutraDried are coming soon, so revenues should keep climbing.

My thesis for investing in ENW is Moon Cheese justifies/supports at least half of EnWave's $145 million market cap ($1.30 per share), and we haven't even begun to factor in multi-billion dollar growth opportunities for EnWave in cannabis, pharmaceuticals, and global food royalties.

A disruptor?

Yeah, I think so. Since 2013 they've shown themselves to be capable of disrupting the global food industry and generating massive revenue growth, yet EnWave is still only scratching the surface of what's possible in the $145+ billion snack food industry. Just a few days ago they announced a huge achievement in the drying process for cannabis. And last month EnWave signed a joint technology development deal with GEA Lyophil, one of the world's largest technology suppliers into pharmaceutical processing, whereby REV will be used to create sensitive vaccines and genetic therapies.

EnWave Mission... DISRUPTION

Seems like everybody wants to be considered a "disruptor" now a days, but if I've learned anything from watching true disruptors like Teladoc (TDOC, NYSE) there's a substantial amount of money to be made upon correctly identifying a disruptor.

Stock selection is only half of it, though. You've also got to have the patience to ride the wave without completely falling off (over 4 years TDOC has been a 16-bagger, and that wave hasn't stopped yet).

Today I only hope to have whet your appetite to learn more about EnWave. In the days and weeks to come we will really dig into every aspect of their awesome business model. This is going to be a long-term growth story so make sure it's on your watch list, and hope it dips back below a buck (probably won't, but what a gift that would be!).

ENW's share price took a big hit over the last 18 months, dropping from an all-time high of nearly $2.75 to long-term support around 50 cents. Since March ENW has been trending up in an orderly fashion, currently trading $1.40 per share. Watch this take out the old highs in 2021 and keep on trucking to "double digits" in the years following.

In closing, might I also add we've had success with food processing equipment before. I covered Key Technology (KTEC, NASDAQ) closely in 2017, first recommending it for $13 per share. Eleven months later we had a liquidity moment when KTEC was acquired for $26.75 per share, an all cash offer.