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Bubbles pop.

It’s true about sparkling water. It’s true about investing. And it’s likely true about investing in sparkling water.

That is, if you choose to buy the shares of National Beverage Co. of Fort Lauderdale, Fla., the owner of LaCroix sparkling water. LaCroix’s roll-out in Canada is an ongoing success apparently with the beverage appearing in more stores and more refrigerators. Consumers who have been told to “invest in what you know,” and love the sugar-free substitute for soft drinks, may be tempted to get in on LaCroix’s parent.

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But the more you know about National Beverage (ticker FIZZ), the less you may want to partake in the shares.

Really, the company’s explosively fizzy news releases, littered with exclamation points and gassy hyperbole should be enough to scare most investors away. They are apparently written by 81-year-old chairman and chief executive Nick Caporella, the perfect CEO for the Donald Trump era.

The company said in its earnings release onWednesday, “today’s earnings announcement reflects the excellent performance of a company genuinely committed to its purpose.” The company’s “iconic brands are the genuine essence ... of America.”

In an October, 2017, news release, issued when Mr. Caporella was angered by short-sellers who sought to profit from his stock’s decline, he asked: “Where is the SEC watchdog? … If you have the opinion that I, Nick A. Caporella, am angrily exercised while extremely fortunate to be guiding FIZZ, your opinion is quite accurate!”

Alas, the U.S. Securities and Exchange Commission was watching National Beverage, and it had a question. As reported by The Wall Street Journal this week, the SEC’s staff was curious about National Beverage’s news releases referencing “velocity per outlet,” and “velocity per capita” and “proven velocity predictors.” Perhaps, the SEC suggested, there is more to be said about these performance indicators?

As is often the case, the correspondence shows, the company tried at first to resist.

“This information is as secretive as the formulas of our beverages and should not be disclosed to our competition.”

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Then it yielded. Velocity per outlet, the company subsequently admitted, is the number of units sold divided by the number of outlets stocking the product, and velocity per capita is the number of units sold in a given geographic area divided by the population of the area. We’re still not so sure about the “proven velocity predictors.”

This little kerfuffle, which seems to be settled, is just a small part of the overall tomfoolery, bad governance and other red flags at this enterprise, which investors have awarded a market valuation of nearly US$5-billion.

Since Mr. Caporella owns more than 70 per cent of the shares, the company is exempt from any number of governance requirements, and has taken full advantage.

Glass Lewis & Co., one of the major proxy-advisory firms, has given the company ratings of “poor” for executive-compensation structure and disclosure. The company didn’t place its auditor before the shareholders for approval, and its audit committee only met three times in the fiscal year that ended in April, 2017.

National Beverage recently amended its bylaws to change a host of voting matters. Since Mr. Caporella owns the bulk of the shares, the changes were a fait accompli.

“We are not asking you for a proxy and you are requested to not send us proxy,” the company helpfully told its shareholders, conveying the irrelevance of their vote.

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Investors don’t care about all of this stuff, of course, if they’re in on a big trendy growth story, which LaCroix seems to be. After all, credit is due to Mr. Caporella for taking a company best known for owning the obscure cola Shasta, acquiring LaCroix, and being properly positioned for the anti-pop wave.

The reward? Some of the highest multiples in the soda space, with the shares trading at more than 20 times forward EBITDA (earnings before interest, taxes, depreciation and amortization), and a conventional forward price-to-earnings ratio of nearly 30.

This brings us back to the company’s purple prose, however. In its news release on Wednesday, the company presented three-year growth numbers it said “reaffirm our leadership position as the #1 Sparkling Water in North America.”

“Our highly innovative business,” it continues, “ … should not be analyzed on the common three-month (quarterly) periods, traditionally found acceptable. Today, costly development projects, seasonal weather periods, plus promotional packaging, make quarter-to-quarter comparisons unworthy statistics, not truly beneficial for investors and shareholders alike.”

Perhaps the reason the company discourages investors from examining quarterly results is that National Beverage’s growth is actually slowing. By pulling the numbers from S&P Global Market Intelligence, we see that National Beverage’s fourth-quarter sales were up 15.2 per cent from the prior-year quarter. That rate is less than the year-over-year gain in the third quarter (16.9 per cent), as well as the change one year ago (18.5 per cent). It was the second consecutive quarter, in fact, that revenue growth slowed.

I foresee another pen-pal exchange between the SEC and National Beverage about its disclosure choices and who’s really benefiting when the company hides its results. In the meantime, enjoy the drink and avoid the stock.

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