Listening To Peter Lynch’s Advice: Buy What You Know. Is Zevia Stock a Great Buy?

This is my first blog post. I wasn’t sure how it was going to start off but as I was reading Peter Lynch’s book One Up On Wall Street, the urge to write came around.

There is this company that I hold some shares in, Zevia PBC, because I thoroughly enjoy the product, however, the company isn’t profitable and institutional ownership is higher, both things that Peter Lynch warns about.

As much as I enjoy the product I realise it isn’t a great investment ‘right now’ due to the opportunity cost of where I can allocate my present cash flow for a better return.

This reminds me of when I use to watch hours of Shark Tank and how some of the investors would tell the entrepreneurs “I will be a customer but not an investor” because their companies didn’t have a favorable balance sheet or they didn’t see how the company could grow or gain market share quick enough to earn a return on their investment.

Zevia has been around for well over a decade but it didn’t IPO until 2021.

I remember passing by their sodas when grocery shopping. Their six packs always sat on the edge of the soda pop aisles where all those weird drinks often sit. The average soda drinker goes right past it, so I never paid it any attention. (Amy Taylor the CEO is trying to fix this with correct merchandising layout. For example, my local Walmart now has Zevia on the shelves next to their brand of products instead of off to the side. )

Even when I started my fitness and weight loss journey, when I did want a soda, I would gravitate towards the diet and zero sugar drinks from well known soda brands.

It wasn’t until I began to really get into healthier alternatives that I came across the name Zevia again, little did I know,  those odd cans on the end aisles with the bubbles floating on them would become a favorite drink of mine in 2024.

When I finally came across the brand again at my local Fred Meyers (Krogers) the packaging was different and it was in the health aisle near my seaweed snacks.

It was a no brainer this time as I placed it in the cart. ( I had tried Target’s own stevia soda a week prior and Zevia came up when I Googled for a well known brand.)

Just placing it in the cart felt clean – which is how I often try to eat now and days.

Even next to a pack of chips or oreos it feels like you have a balance of added sugar in your diet. I have since gone on and tried various flavors of theirs. Grape, Creamy Root beer, Cream Soda, Black Cherry, Cherry Cola, Orange and Dr Zevia.

I don’t ever see myself going back to diet soda with aspartame with the added ingredients and caramelization.

What I like about Zevia is that the soda is always clear – no dyes or coloring added. This also makes it great for parents who worry about carpet stains, not to mention it is naturally sweeten with just stevia.

As you can see I thoroughly enjoy the product and do believe that in this information age with people becoming more aware of their health and the problems associated with obesity that Zevia will continue to gain market share, however, this is where Peter Lynch comes in…

The company isn’t profitable and has diluated shares. The stock opened at $14 in 2021 but since then has fallen below $2. It falling from it’s IPO doesn’t scare me, often times there is hype and speculation when a company IPOs and the stock is bought, sometimes even shooting up to a high share price, but then a couple earnings reports later, shares are sold and the stock settles.

But what concerns me is how long until investors began to see a return on an investment and at what opportunity cost? It’s a company that I will not write off just yet, but if I am thinking as an investor and not a consumer, then it is fair to say it should only sit on my watch list not on my balance sheet for the time being.

I did buy some shares before writing this but the cost was minimal given the share price. I will hold onto those. They don’t have a huge weighted cost in the investment fund and the risk is minimal.

It can take years for companies to become profitable especially if a company is having to gain market share in a notoriously difficult industry where companies have a strong hold with their moats.

The lesson here…

Separate the love of a product from your investment.

Peter Lynch argues you should invest in something you know and use, and watching this company and keeping a close eye for the foreseeable future falls in line with that.

What he doesn’t argue is investing in everything you use regardless of the balance sheet, market dynamics etc. I think this is where many investors starting out get confused.

Note: At the time of this writing Zevia has no debt, has $30+ million in cash on its balance sheet and a hefty line of credit if needed. Personally, for me, it is worth watching.