Should You Invest in Jose Cuervo?

By Brendan Hilliard

Daniel Lugasi, president and founder of VL Capital Management, echoes this saying that trends in recent years have shifted in consumption to high-end tequila varieties while lower quality, mixed tequila shipments have remained flat. Lugasi, whose firm specializes in quantitative equity investing primarily driven by in-house computer systems, says that data from the Mexican Tequila Regulatory Council shows that developing countries such as China also represent untapped markets. “Tequila exports to the U.S. totaled 40 million gallons in 2015,” he says. “During that same period, exports to China totaled only 145,000 gallons or 0.3% of U.S. consumption. If tequila brands are able to market their products to developing economies effectively, they will have a very long runway for growth.”

And Jose Cuervo’s financials are certainly promising, from an investor’s perspective. “Jose Cuervo is a profitable company with rapidly growing sales and expanding profit margins,” says Lugasi. This is bolstered by the fact that the company will likely not face any liquidity issues in the near future and possesses limited debt. Since Jose Cuervo previously saw a high level of demand for their $500 million bond sale in 2015, investors also believe this could be indicative of strong demand for an IPO. Even more, the lack of companies on the market devoted exclusively to tequila, could boost demand for shares in the company.

Lugasi also says that Cuervo has some important considerations to take into account before going public. “As a private company, there is no shareholder oversight and all decisions are made by the Beckmann family, who own the majority interest,” he says. Going public means opening up to critique from analysts and shareholders alike, as well as any vulnerabilities that may arise from public transparency.

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