Youngevity Could Be The Most Undervalued And Safest CBD Play On The Market
Published: Oct 09, 2018

Oct. 8, 2018 11:41 PM ET  


 About: Youngevity International, Inc. (YGYI), Includes: IGCTLRY

Spencer Osborne

Growth, value, special situations, momentum



Youngevity's market cap is less than 1x 2019 revenue without considering CBD.

The company seeks to create a field-to-finish hemp business.

Investors can make a CBD play knowing that the coffee and direct selling aspects of the company offer stability.

When a sector gets hot, investors often chase their tails trying to find the next play that can deliver massive returns. If you time your play right, it can be highly profitable. If you do not time your play right, you can chase your tail for months and pay healthy commissions along the way. These days, the hot sector on Wall Street is the CBD space. A company like Tilray (NASDAQ:TLRY) enjoys massive multi-billion dollar market cap on revenue that is just $20 million. Meanwhile, the company was able to raise an impressive $400 millionin a recent offering. Tilray is hot! Shift to India Globalization Capital (NYSEMKT:IGC) and we see a company that has yet to sell a product reach over $13 per share, which represented a market cap of nearly $500 million. What moved that stock? The announcement of an intended energy drink product containing CBD. IGC is hot!

This brings me to Youngevity (NASDAQ:YGYI). Even with a recent run from $4 per share to $8 per share, it is an undervalued play as it begins to enter the CBD space. Youngevity is projected to deliver $240 million in revenue in 2019 on direct selling and coffee, yet only sports a market cap of about $175 million. Yes, you read that correctly. A company that is slated to have $240 million in net revenue next year is trading at below 1x net revenue.

Let's take it a step further. The anticipated net revenue of $240 million does not even consider the entrance into the CBD market.

Now, another step. The company just announced that it is adding two CBD beverages to its three other CBD retail products.

Lastly, Youngevity announced about a week ago that it is intent on going into the CBD market from farm to finish. That means it will become a true CBD player that goes beyond retail products.

Now let's look at a comparison, India Globalization Capital. That company has no revenue and sports a market cap of over $200 million. Whether such a market cap is deserved or not can be debated. What cannot be debated is that IGC is enjoying the heat that is developing in the CBD space. Youngevity has an impressive operation in direct selling as well as coffee. The company has many coffee deals on the books, and will begin fulfilling a massive $250 million deal in 2019. The value of that deal is based on the current market prices of coffee. If the price of coffee rises, the value of that deal will as well. From an investment standpoint, what is the more value-driven and safer play? Investing in a company with no revenue and a market cap of $200 million, or investing in a company that is undervalued already on its direct selling and coffee business and is entering the CBD space in a major way? That answer seems rather simple.

Perhaps you are a trader who has made some good profit on a play like Tilray or IGC. Perhaps you want to lock in some profits but are not yet ready to stop riding the CBD wave. Youngevity may be a perfect play. Unlike Tilray or IGC, it has an established business that generates impressive revenue and offers a more diverse and perhaps safer way to make a CBD play.

You might be an investor who has heard of the massive success stories of the likes of Tilray, missed that boat, and you may be seeking a new play that has not yet been discovered by the Street. That next boat could well be Youngevity. Even if you were not in at $4 per share, this company is still undervalued when trading at $8. Consider that other direct-selling companies that trade at 2x net revenue and you can see why in and of itself Youngevity is undervalued. There is a play here in Youngevity without even considering the CBD business yet!

What makes Youngevity a good CBD play is that it is not a newcomer to the business of how to operate a commodity-based business from growth all the way to the consumer. The company has produced an outstanding coffee business that is field-to-cup. In other words, Youngevity grows, dries, processes, roasts, packages, and sells the coffee. The company has its own brands like Cafe La Rica and does contract packaging as well. Simply stated, Youngevity has created a successful vertical commodity model that can translate perfectly into the CBD space.

Now, let's inject some levity. Let's say that you believe that Tilray is overvalued by a factor of 3. Let's say that the company is slated to do $100 million in revenue in 2019. That would give Tilray a market cap of $5 billion, and it would still be trading at 50x net revenue. At 2x net revenue on direct selling and coffee, Youngevity should be trading at over $20 per share. If it were to acquire a hemp operation that does $15-30 million in net revenue already, then the valuation of Youngevity should be multiples higher. In fact, it could be possible to see a valuation that is in the billions!

Now let me inject some longer-term speculation that is unique to the company.

It just so happens that the areas where coffee grows well also happen to be a great environment to grow hemp. It just so happens that Youngevity owns multiple plantations in Nicaragua, and in addition, holds long-term leases on even more ground. Why is that important? Because labor, processing, and land costs are lower in Nicaragua than they are in the U.S. What if some of that land, already under the control of the company, were to produce hemp? What if multiple coffee growers decided to dedicate acreage to hemp instead of coffee? The price of coffee would rise due to lower supply but stable or increasing demand. Suddenly, the $250 million coffee deal based on low coffee prices might be worth $300 million or more. Meanwhile, Youngevity can produce, dry, process, and extract CBD oil from an operation that can run leaner and meaner than anyone else in the business. What is possible here is that Youngevity could become a major player in the CBD space with its current assets, leases, facilities, packaging, and overall business know-how that other players simply do not possess.

Think about what types of investors might consider Youngevity:

  • Investors looking for an undervalued traditional play.
  • Those looking to enter a space where direct selling is critical and offers a built-in consumer base to sell products to.
  • Investors that have seen early returns on a CBD play (like Tilray or IGC) and are looking for the next wave to play.
  • Those that had early success in the space and are looking for a safe haven to continue the play in a safer manner.
  • Investors that want the security of a stable company, while taking advantage of the CBD space.
  • Investors looking for a strong and undervalued coffee play.
  • Hemp operations that are looking to go public in the fastest possible manner but want a tax-friendly, all-stock deal that will produce future value.
  • Hemp operations that want to diversify a bit while the sector is at its hottest.
  • Institutions and funds seeking to provide accelerated growth opportunities to their clients with lower risk.
  • Speculators seeking a value opportunity before it takes off by way of its entry into the CBD space.

In very simple terms, Youngevity is undervalued on its coffee and direct selling business alone. Heck, another big coffee deal could come at any moment and create even more value! The company is highly undervalued if you begin to consider its entrance into the CBD retail space. It is massively undervalued if it gets a hemp and CBD operation under contract and becomes a true "field-to-finish" company in the space. Youngevity is insanely undervalued if the hemp and CBD business gets global and reaches its true overall potential.

Sometimes you simply need to be in the right place at the right time and under the right circumstances. The fact that Youngevity is already undervalued makes it a prime candidate to quickly close a deal with an established hemp operation looking to capitalize on the excitement of this sector by going public in the fastest possible manner. The quickest way to go public is to be acquired in a tax-friendly, all-stock deal by a company that is already public. The best candidate to do so is a company that is still currently undervalued.

If you think about it, seeing the potential that exists with this company, you have a chance to get in on a CBD play prior to most of the market. The story does seem to be filtering out given the rise from $4 to $8, but it is still a relatively unknown player in the space. What I can tell you is that no one that I know of has contemplated the angle of Youngevity being able to use its existing acreage to capitalize on creating far superior margins in both hemp and coffee.

Stay tuned!

Disclosure: I am/we are long YGYI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.


Youngevity International caps up 66% day with 6% AH bump

Oct. 9, 2018 5:20 PM ET|About: Youngevity International,... (YGYI)|By: , SA News Editor 

Youngevity International (NASDAQ:YGYI) is up 5.8% in AH trading after today's 66% rally in share price didn't put an end to the buying action.

There's no news to report other than YGYI has replaced New Age Beverages as the shiny new play toy of investors betting on the cannabis-beverage industry.