Earth has the nickname “Water Planet” because three-fourths of its surface is covered with water. Sadly, though, much of this water isn’t potable (i.e., drinkable). In addition to salt, there is pollution, climate change, overpopulation, overdevelopment, and excessive farming run-offs that altogether make clean water a coveted resource.
Fueling demand for water is also the profound shift in consumer habits away from sugary soda toward bottled water. Indeed, Americans now drink more bottled water than soda, a turning point that creates a giant opportunity for investors.
In this dangerously overvalued market, you need to look for trends that will unfold no matter what happens in the economy or politically. These mega-trends are sure paths to investment riches, if you pinpoint the right ones. The exploding demand for water is one such trend.
An exciting play on that trend is The Alkaline Water Company (OTCQB:WTER), a company large enough to show staying power but small enough to offer outsized growth potential in a broader market that’s increasingly overvalued.
Based in Scottsdale, Arizona, the Alkaline Water Company produces and markets bottled alkaline water for retail consumers in various volumes under the Alkaline88 brand name. The company’s target retail markets include chain and independent health food stores, grocery stores, convenience stores, drug stores, and the mass retail market.
The Alkaline Water Company produces high quality, 8.8 pH drinking water, without the use of chemicals. According to the tenets of the alkaline diet, consumed food and liquids exert an influence on the acidity and pH of the urine, blood and other bodily fluids. Alkaline water could hold the key to preventing or treating diseases caused by pH imbalances.
In addition to the growing preoccupation in America with healthy foods and beverages, other tailwinds are benefiting The Alkaline Water Company. The disaster that still surrounds the contaminated drinking water supply in Flint, Michigan is yet another reminder that America’s infrastructure is crumbling and the country’s water systems are in a state of desperate disrepair.
According to recent projections from the U.S. Environmental Protection Agency, U.S. water infrastructure requires an investment of at least $384.2 billion, including $247.5 billion for the pipes alone. Wastewater infrastructure requires an additional $300 billion. These harsh realities make bottled water all the more appealing to consumers, as citizens lose faith in the country’s public water supply.
Big Soda’s Waterloo
Regardless of the unpredictability of President Donald Trump or the direction of the economy and markets, consumers are on track to demand more bottled water well into the foreseeable future. That makes bottled water a depression- and recession-resistant trend.
According to Zenith Global, a consulting firm, the global market for bottled water increased 9% year-over-year to 12.8 billion gallons in 2016, for a total value of $147 billion.
To be sure, the Big Soda companies all sell various types of bottled water; but for them, it’s too little, too late. Not only are consumers turning away from the carbonated soft drinks of established iconic brands such as Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP), but they’re generally indifferent to the bottled water brands offered by these behemoths.
The best opportunities in the bottled water bonanza are with smaller companies that have crafted “boutique” brands with distinctive benefits and personalities. Whether it’s beer or bottled water, the offerings of transnational behemoths don’t have the same appeal as names such as Alkaline88. Big Soda has met its Waterloo (so to speak), as fickle, calorie-conscious consumers avoid soft drinks in favor of bottled water — especially value-added offerings such as purified alkaline water.
These trends are manna for The Alkaline Water Company. Year to date, the stock has gained around 25%, with further upside probably in the cards.
On July 18, The Alkaline Water Company reported operating results for full fiscal year 2017 that bode well for its future growth. Revenue for the fiscal year (ended March 31) was $12.7 million, compared to $7 million for the same year-ago period, representing a whopping year-over-year increase of 80%. Gross profit as a percentage of revenue for the year was 42.5%, versus 37.5% last year.
The company in 2016 made significant investments in product enhancement and marketing, which sets the table for growth. But these expenditures also temporarily weighed on the bottom line. The company reported a net loss for the year of $3.4 million, narrower than the net loss of $8.2 million in the previous fiscal year.
Among the company’s expansion efforts in fiscal 2017 was the national launch of new single-serving-size labels, as well as new joint packing operations in Virginia and Georgia. The company now operates six “co-packing” facilities with other bottlers with a combined production capacity in the tens of millions. The company also added several retail chains to its client roster nationwide.