Castle Brands, Inc. – Value Analysis (NYSE MKT:ROX) : August 1, 2017

Capitalcube gives Castle Brands, Inc. a score of 34.

Our analysis is based on comparing Castle Brands, Inc. with the following peers – Brown-Forman Corporation Class B, Willamette Valley Vineyards, Inc., Constellation Brands, Inc. Class A and Diageo plc Sponsored ADR (BF.B-US, WVVI-US, STZ-US and DEO-US).

Investment Outlook

Castle Brands, Inc. has a fundamental score of 34 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It currently trades at a Price/Book ratio of (65.38).
  • ROX-US‘s EBITDA-based price implies better than peer median growth.The market seems to expect a turnaround in the company’s current EBITDA-based return on equity.
  • ROX-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • ROX-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • Compared with the peers chosen, ROX-US has had faster revenue growth in prior years and a current Price/EBITDA ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • ROX-US‘s operating performance may not allow it to raise additional debt.

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Leverage & Liquidity

ROX-US would seem to have a hard time raising additional debt.

  • With debt at a relatively low 12.07% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 15.16%), and relatively tight interest coverage level of 1.43x, ROX-US would have a hard time raising much additional debt. Thus, the company is classified as having Limited Flexibility when it comes to raising more debt.
  • All 4 peers for the company have an outstanding debt balance.

ROX-US has maintained its Constrained profile from the prior year-end.

  • ROX-US‘s interest coverage is its highest over the last four years and compares to a low of -4.62x in 2013.
  • The increase in its interest coverage to 1.43x from 0.92x (in 2016) was also accompanied by an increase in its peer median during this period to 7.93x from 6.32x.
  • Interest coverage fell 1.11 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • ROX-US‘s debt-EV continues to trend upward and is above (but within one standard deviation of) its four-year average debt-EV of 9.75%.
  • Like the interest coverage trend, the increase in its debt-EV (to 12.07% from 8.38%) was also accompanied by an increase in its peer median during this period (to 15.16% from 14.44%).
  • Relative to peers, debt-EV rose 2.96 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Brown-Forman Corporation Class B 10.67 2.42 15.75 40.16
Willamette Valley Vineyards, Inc. 18.25 4.92 12.47 59.25
Constellation Brands, Inc. Class A 20.6 1.54 6.57 20.53
Diageo plc Sponsored ADR N/A 1.3 7.93 29.64
Castle Brands Inc. 12.07 3.17 1.43 11.69
Peer Median 15.16 2.42 7.93 29.64
Best In Class 10.67 4.92 15.75 59.25

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Company Profile

Castle Brands, Inc. is engaged in the importation, marketing and sale of premium and super premium brands of rums, whiskey, liqueurs, vodka and tequila in the United States, Canada, Europe and Asia. It offers premium brands in beverage alcohol categories: rum, whiskey, liqueurs, vodka, tequila, and wine. The company was founded by Mark Edwin Andrew III in July 2003 and is headquartered in New York, NY.

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