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It’s been three weeks since Black rifle coffee (NYSE:DCFC) announced that it would redeem all of its warrants to purchase BRCC shares in a cashless exercise. On April 19, investors learned that they would get 0.361 Class A common shares per warrant. At the current share price, that equates to about $6.36 in cash.
Since the takeover announcement on April 4, BRCC has lost 42% of its value. the S&P500 lost 8.2%, or 80% less, over the same period. Like my InvestorPlace colleague, Joel Baglole, said the day after the takeover announcement, the move diluted the number of company shares.
The question potential shareholders should be asking today is whether to buy now or wait for the takeover to be completed at 5 p.m. on May 4.
From the company’s perspective, a forced redemption of its warrants is a no-brainer. If her shares meet the trading requirement to force a redemption of her warrants, 10 times out of 10 she will.
As the company loses cash generated from exercising warrants at $11.50 per share, it is cleaning up its capitalization structure while diluting shareholders through a quick share issuance rather than a little over five years, the period during which they can be exercised.
Now trading at its lowest price since late March, the coffee company fourth quarter results are in the rearview mirror. However, InvestorPlace Larry Ramer thought they were reasonably strong despite losing $300,000 in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
There’s no doubt that Black Rifle has brand appeal that will continue to drive revenue growth in 2022 and beyond. My biggest concern in an economic environment like the one we find ourselves in now is that the BRCC stock may not be able to maintain its gross margins.
In 2021, Black Rifle margins were 38.5%, 380 basis points lower than a year ago. With inflation continuing to eat away at consumer paychecks much more, one has to wonder if it will be able to make money in 2022, as its forecast suggests.
For the most part, though, I think the buyout dilution is already priced in to its stock price, so those interested in buying don’t need to wait until May 4th. However, if it was me, I would consider buying Starbucks (NASDAQ:SBUX) Instead. Quality and scale matter in dark markets like these.
As of the date of publication, Will Ashworth had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.