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I recommended that investors purchase shares of discount soda-seller Cott Corp. on Aug. 4. Since that recommendation, Cott's shares have jumped 63 per cent. So far this year, Cott has surged more than seven-fold. That rally is fundamentally justified and has further to go. Cott, which makes RC cola and the Red Rain energy drink, swung to a third-quarter profit of $14 million, or 18 cents a share, from a loss of $88 million, or $1.25 a share, a year earlier. Revenue declined 4 per cent to $405 million, but profit spreads improved. Cott's gross margin rose from 16 per cent to 19 per cent and its operating margin climbed from 2 per cent to 7 per cent.

Recent operating success has strengthened the company's balance sheet. Cott now holds $19 million of cash reserves, translating to an adequate quick ratio of 1. And a debt-to-equity ratio of 0.8 indicates reasonable leverage. Still, we give Cott a financial-strength score of just 2.1 out of 10 due to inconsistent performance.

In 2008, Cott was suffering under restructuring and asset-impairment charges. In the prior year's third-quarter, the company posted an operating loss of $91 million due to impairments. Investors abandoned the stock, questioning not only its investment merits, but its long-term viability.

A fire-sale caused Cott to lose 82 per cent of its market value over the course of a year. The stock bottomed at 66 cents on Oct. 10, 2008. The shares now trade around $9. So if you possessed the insight to buy at the bottom, you'd be up 1,271 per cent now, a respectable return over a one-year period.

Despite the outstanding rally, Cott is still remarkably cheap relative to its peer group and brand-name pop purveyors Coke and Pepsi . Based on book value, Cott is 62 per cent cheaper than Coke and 68 per cent cheaper than Pepsi. And when considering sales, Cott is 89 per cent cheaper than Coke and 59 per cent cheaper than Pepsi.

Although I remain optimistic about this stock's potential, I must admit it's finicky. A beta of 2.8 demonstrates above-average volatility. If we suffer a stock-market correction, and investors decide to take profits on Cott, the stock could drop precipitously. We give Cott a volatility score of 2.4 out of 10, less than the "buy"-list average of 4.3.