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Article for WTER
Alkaline Water Company reported strong sales growth for March and positive financial expectations for the current quarter.
The company is riding a trend away from acidic beverages toward those high in pH.
The past and recent dilution of investors has left a bad taste with the market.
The recent retail agreements could finally reward shareholders as the company is on pace to reach cash flow neutral.
After years of fits and starts, Alkaline Water Company (OTCQB:WTER) is finally making some great headwinds into the growth phase despite missing original targets. The stock remains a high risk with lots of skepticism in the market, but a unique opportunity exists.
Source: Alkaline Water presentation
The company is riding a trend in the preference for consuming water over soda and the preference to move away from acidic beverages towards products high in pH. Some skepticism exists regarding the touted benefits of alkaline water, but it doesn’t matter to investors why consumers follow a trend. The only thing important is whether Alkaline Water is positioned to ride a trend to higher sales and future positive cash flows.
Corporate Profile
The small-cap stock sells the Alkaline88 bottled water product to retail outlets in the U.S. Recent deals include distribution agreements with Costco (NASDAQ:COST) in the Pacific NorthWest and Albertsons (NYSE:ABS)-affiliated Tom Thumbs in the greater Dallas/Ft. Worth region. These deals are on top of numerous other deals to sell its bottled water to well-known retailers.
Alkaline Water Company focuses on a proprietary electrolysis process that produces water with alkaline properties by coating electronic cells with rare earth minerals to produce scientifically engineered water. The water has an 8.8 pH balance that contrasts with the highly acidic soda beverages produced by the likes of Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP). The high alkaline water supposedly destroys pepsin that when activated by acid causes the reflux symptoms.
The company has had a dilutive past highlighted by previous Seeking Alpha articles, while at the same time, the alkaline water bottler has recently generated exceptional revenue growth. The only problem is that the inability to meet internal growth targets could again force future dilutive moves.
Beverage Industry Outlook
The beverage industry growth path is definitely favoring a shift toward healthier beverages. Anybody following Coca-Cola or Pepsi knows that soda consumption has pressured those companies over the last decade or so and pushed the beverage giants into non-soda investments.
According to research from Beverage Marketing, the U.S. liquid refreshment beverage market grew quicker in 2015 due in large part to bottled water segment growth. The healthy, natural and zero-calorie concepts are highly desirable by consumers that continue to shed traditional soda beverages like Coke, Pepsi and Mountain Dew.
Worth noting, the water brands of Nestle Pure Life, Poland Spring, Dasani, and Aquafina are all top 10 beverage trademarks. All four water products saw the leading growth last year for the top trademarks, with only the sports drink trademark of Gatorade approaching the growth rates of bottled water.
While the water bottlers are showing the fastest growth, the volumes are still relatively small compared to soda products. Coke products alone sold nearly 4.0 million gallons in 2015. The top water trademarks together were only 80% of the Coke consumption at 3.2 million gallons. When factoring in all the top 10 trademarks, water accounted for only 23% of the gallons consumed.
According to RBC Capital Markets (via Business Insider), soda consumption has seen a dramatic decline in consumption since the peak back in 1998.
While soda consumption continues collapsing, Marketing Daily highlights a report from Mintel showing that bottled water sales are expected to continue growing through 2020. The market reached $15 billion in 2015 and should grow roughly 35% to over $20 billion by 2020.
Even more interesting is that the sparkling and mineral water segment is forecast to surge 75% in that time period. Consumers listed the below favored attributes when consuming bottled water:
43% – enhanced with vitamins
29% – contain minerals
29% – energy enhancers added
Celebrity Endorsements
So, clearly the data supports the position that bottled water consumption is gaining market share over soda during the next five years. The market generally understands that market shift, but the interesting move is some of the celebrity endorsements of alkaline and a lower acidic diet. Such celebrity plugs could generate momentum in the area whether justified or not.
Interestingly, both Kate Hudson and Elle Macpherson recently made statements supportive of this general shift in the market.
… your body becomes acidic. When you start to become more alkaline, it’s just basically healthier. Everything digests better, your blood is (at a proper pH balance) – Kate Hudson via Fox News
I believe that most ailments come from having an acidic body – Elle Macpherson via People
Neither of these celebrities are pushing Alkaline Water per se, but the company does have Brande Roderick of Baywatch fame plugging the product
Maybe even more importantly, celebrities like Mark Wahlberg and Sean Combs are investing in Aqua Hydrate by The Yucaipa Companies. This bottled water brand focuses on raising alkalinity to a pH of 9 and adding electrolytes and natural trace minerals to fuel performance and hydration.
Of course, having celebrities push the general concept or the specific product aren’t guarantees of success. Though, it does hint that Alkaline Water is onto a concept that could become mainstream. A mainstream product has the potential to significantly reward shareholders.
Recent Progress
While not making the original target for reaching $10 million in annual sales for FY16, Alkaline Water is making progress in ramping up growth. The company recently released that revenue for the month of March actually topped $1 million with record purchase orders of $1.14 million. In essence, the company has annualized sales exceeding $12 million.
The company suggests that financing now exists to fund growth that includes targets of reaching $18 million in sales this fiscal year ending in March 2017. This forecast suggests growth ramping to 150% YoY from the 89%-plus growth rate achieved last year.
Alkaline Water Company reported strong sales growth for March and positive financial expectations for the current quarter.
The company is riding a trend away from acidic beverages toward those high in pH.
The past and recent dilution of investors has left a bad taste with the market.
The recent retail agreements could finally reward shareholders as the company is on pace to reach cash flow neutral.
After years of fits and starts, Alkaline Water Company (OTCQB:WTER) is finally making some great headwinds into the growth phase despite missing original targets. The stock remains a high risk with lots of skepticism in the market, but a unique opportunity exists.
Source: Alkaline Water presentation
The company is riding a trend in the preference for consuming water over soda and the preference to move away from acidic beverages towards products high in pH. Some skepticism exists regarding the touted benefits of alkaline water, but it doesn’t matter to investors why consumers follow a trend. The only thing important is whether Alkaline Water is positioned to ride a trend to higher sales and future positive cash flows.
Corporate Profile
The small-cap stock sells the Alkaline88 bottled water product to retail outlets in the U.S. Recent deals include distribution agreements with Costco (NASDAQ:COST) in the Pacific NorthWest and Albertsons (NYSE:ABS)-affiliated Tom Thumbs in the greater Dallas/Ft. Worth region. These deals are on top of numerous other deals to sell its bottled water to well-known retailers.
Source – Seeking Alpha / Stone Fox Capital
Broad street alerts has not been compensated for the mention of any publicly traded companies in this article nor do we own positions in any of the companies in this article.
Broad Street Alerts was previously compensated eighteen thousand five hundred dollars by star media llc for the mention of FNJN however, that contract has expired.