Coming out of the Great Recession I was long a lot of ZAGG Inc. (ZAGG), the maker of the InvisibleShield smartphone screen protector. At that point, smartphones were becoming ubiquitous and ZAGG had first-mover advantage in the industry. After ZAGG managed to secure shelf-space at Best Buy, the quality and superior protection of Invisible Shield quickly made it the industry standard. With that, accelerated adoption at every cell phone company ensued and sales/earnings inflected in a big way. It was one of my biggest wins, with ZAGG moving from $1 to $10 in two years:
As Zagg’s Store Count kept stacking, so did its revenues, increasing 4x in 3 years:
Fast-forward to the Covid Pandemic. Energy/Fitness Drink maker, Celsius Holdings, Inc. (CELH), saw its revenues inflect massively as its distribution ramp went into overdrive between the years of 2020-2023:
The stock (CELH) inflected too: an incredible case-study in how to land a 30-Bagger in 3.5 years:
Back to the Present: June 2024.
A new upstart in retail – Sow Good, Inc. (SOWG), the leading producer of Freeze-Dried Candy - is in the midst of an incredible revenue ramp with distribution into large US retailers J-curving in real time.
The candy market has been devoid of innovation for nearly three decades. Freeze-Dried Candy became all the rage during Covid. We think it has legs.
The light and puffy candy started during the pandemic but has steadily gained steam over the last few years, especially on TikTok, where the term “freeze-dried candy” has 85 million views. And it's getting easier and easier to get your hands on some. When you search "freeze-dried candy" on Etsy you'll get more than 10,000 results. (source: Parade.com)
Consumer Demand is surging and Large Retail is getting behind this trend. The proof is in the pudding. Look at the powerful 8.5x jump in revenues over the last 4 quarters:
As was the case with our best Inflection Point calls this year – SMCI at $300, ROOT at $13, POWL at $100, WGS at $13, APP at $54 – relative to Forward Consensus, we see big upside in BOTH Sow Good’s revenues AND earnings for the remainder of 2024 and throughout 2025.
We see major upside to both 2025 Revenue & EPS Consensus and the potential for our numbers to prove to be too conservative.
We will walk you through the various inputs shortly. But for now, a quick primer on Sow Good – most importantly, its sterling Management Team.
As for the current size of the Freeze-Dried Candy Market, we’ll admit it is small – ~ $250M in 2024, on its way to $500M by 2026 – but it is also growing at an exponential rate.
How do we know? Well, for starters – Big Retail is getting behind this burgeoning category, which heavily skews the odds that Freeze-Dried Candy is not a fad but instead a new disruptor within Candy/Confectionary that could, in 5 years, grow into a multi-billion dollar vertical.
To be clear, as generalists and Inflection Point sharpshooters, we are NOT making a call on the Freeze-Dried Candy market’s long-term potential. Instead, after spending the past two and a half weeks in non-stop due diligence on Sow Good, we find the weight of evidence supports a simple thesis:
In Sow Good, we have THE DISRUPTIVE FORCE within the sector for one main reason: Sow Good boasts a major-league management team with the proven ability and expertise to scale a similar freeze-dried business, a Pet Food company that was sold in 2020 to Private Equity.
This is incredibly rare to find within small caps: A company with a staggering growth rate, being led by a proven Management Team that has directed this movie before. This is a powerful combination that, in our opinion, mitigates the risk and puts significant odds (70%) for a multi-bagger story to unfold over the next 9 months.
Yes, we expect SOWG to double in the next 9 months. Now let’s meet the Sow Good Management Team.
Sow Good is led by a husband-and-wife team, Claudia and Ira Goldfarb. While not always a good thing to mix family and business, in the case of Sow Good, our conviction is boosted by this dynamic duo:
Ira’s family has a long history in Retail, with his father, Aron Goldfarb, the founder of G-III Apparel (GIII).
From 2012 until 2020, Ira and Claudia scaled their previous company, Prairie Dog Pet Products – a leading freeze-dried pet treat manufacturing company – from $0 to ~$150M when it was ultimately sold to private equity. Apparently, Nestle was also in the running for Prairie Dog Pet, so without a doubt, a major league caliber company.
Seeing an opportunity to create a new candy category for Consumers with Freeze-Dried Candy, the Goldfarbs are employing its previous play book to scale quickly and shrewdly, by creating various moats to ensure they secure majority-share of this dynamically growing vertical.
While you can easily go online and get instructions on how to make your own freeze-dried candy, make no mistake, doing it at scale with an increased SKU count is very difficult. Far different levels of sophistication are required to get it right, each and every time. For instance, making free-dried “Skittles” is fairly straight-forward. Not so for ice cream bars, however, which have a high-degree of complexity to get them right.
Here are some important data points on what distinguishes the Goldfarbs’ approach from their competition:
SKU breadth is also a huge draw for Large Retail. The ability to produce dozens of SKUs and to scale in size is why Sow Good will crush it for at least the next 18 months. The demand is already HUGE!
Look at Management’s bullish commentary on demand and plans to increase capacity from the May S-1:
Not only do the Goldfarbs have the technical prowess to scale up multiple large freeze-driers, but they also know how to do it profitably.
They are also the largest shareholders, owning over 3M shares between the two of them.
With this in mind, they are highly-motivated to get the stock well above $40, as they will be awarded a HUGE PAY-DAY (via stock options) if the stock were to go to $60…$80…$100 down the road.
The Goldfarbs also know how to create a moat.
To wit, when we came across this story, the skeptic in us initially questioned what was going to stop Mars Candy from going to China and partnering with a co-packer there to do its freeze-drying production for them.
Well, during an hour-long intro chat with SOWG’s impressive CFO, Brenden Fischer - a former Buy-Side money manager who “gets” the Under-Promise/Over-Deliver Game – we learned that securing a top-notch co-packer to manufacture candy safely in China is very hard to do.
Ira Goldfarb visited nearly 20 co-packers and came across only one that met their quality standards. This co-packer has been locked up into an exclusive relationship with Sow Good in the Candy space. So, good luck to Mars and other big candy players… You will be much better off simply writing a check for Sow Good late next year when the company is on its way to a $250M run rate for 2026!
Most importantly, the growth is happening in real time. It is safe to say we have never seen a surge in retail door expansion as quickly as we are witnessing with Sow Good. What really caught our attention was this PR from a few weeks ago – after quadrupling their capacity late last year to $60M, the company was doing it again, 7 months later:
SOWG also ordered 5 more freezers, 3 of which will be ready to produce candy in Q4 of this year, with the other two coming online in early Q1 of next year. Our best guess is Sow Good will order another 5-6 freezers to bring online next spring, translating into $150M of domestic capacity for all of 2025.
Add in $50M from its co-packers and it’s easy to see how Sow Good COULD do $200M next year.
At the end of Q1, SOWG’s door count was ~5500 stores. Take a look at the names brought on in the past 3 months, a Who’s Who of Large Retail:
Keep in mind:
In June, Target is increasing from 300 to 1900 stores with 5 SKUs.
Kroger will sell Sow Good in all 2k stores, with promotional displays and 4 SKUs.
7-Eleven will offer Sow Good in all 8k stores.
That’s almost a doubling in Store Count from just these three retailers. This ramp-up is happening in real time. Sow Good’s Q3 is going to be nuts!!
We think the Large Retailers (below) took serious heed at how quickly Sow Good’s products flew off the shelves at Five Below, over the past four quarters (its biggest customer in Q1 at 50% of Sales).
Take a look at how Sow Good has advanced with Five Below, exiting Q1 at a ~$26m annualized run rate. By the way, Five Below does $3.9b in sales a year:
There is no other company able to operate at Sow Good’s scale over the coming 6 Quarters. This gives us a high-degree of confidence that Sow Good will own this space through 2025.
There is big opportunity in entering a SOWG position here. We see HUGE UPSIDE to Forward Consensus as Sow Good ratchets up its exposure in these Large Retailers.
To that point, during our extensive call with the CFO Brendon Fischer last week, we noted the following comments:
“Large retailers are calling US.”
“It’s safe to assume we are talking to every large retailer…” “Are Walmart, Costco and BJ’s coming online in 2025?” “Hmmmm…”
“This is our Goldilocks Phase in our business.”
“Stores want this product.”
“We are gating customers. We don’t want product out of stock, want to be able to fulfill.”
The math adds up very quickly. Q3 and Q4 should be huge beats on BOTH the Top and Bottom Lines for Sow Good, as these will be the first two quarters where Target, Kroger, 7-Eleven, Albertsons, Ross and Circle K ALL have products on their shelves. Not to mention new forthcoming Holiday and Seasonal SKUs as well.
Looking ahead to 2025, this how we think the Sow Good story unfolds: No other company will be able to replicate what SOWG product line/production for at least 18 months.
Here is why:
Consequently, we believe $175-$200M is achievable in 2025.
The Math is quite simple. We don't mean to be smug. But it is. Let’s take a look:
Next year, Large Retail SKU count will go up to 6-9 per store, which means a BIG GROWTH year:
Add them all up and that is $130M.
Costco and BJ's are in mix. Walmart conversations are happening too. Let's say they get 2 out of 3.
Let's say $12M from each first year.
Now we’re at $154M.
Add on the initial move into Canada late next year and other retailers in the US…
We figure $175-$200M in revenues in 2025.
Here is what Forward Consensus looks like:
So, crazy upside coming.
And, the math works. We even think our numbers may prove to be conservative.
Considering Sow Good will begin brand-building in 2H’24, we think this will prove to be impeccable tactical timing. Consumers will be able to find their products while shopping in these Large Retailers, which will, in turn, create a perfect feedback loop.
Keep in mind that Sow Good has grown to a $45M annualized run rate WITHOUT ANY Marketing Spend.
Sow Good’s incredible growth has resulted solely from the buzz on Social Media!
On May 30, Sow Good’s Management Team rang the Opening Bell on the Nasdaq to celebrate becoming the FIRST publicly-traded Freeze-Dried Candy company.
Sow Good has been creating quite a stir on the Twitter-sphere…
But as RedStoneFoods so aptly notes, “These candies have been trending on TikTok with over 2.5 billion views.” The TikTok’ers below are narrowed down to users with 1k followers or more…
While we certainly recommend that you sample Sow Good’s candies yourselves, you can also jump on TikTok and watch the Foodies weigh in all the various Sow Good products… The reviews are overwhelmingly POSITIVE. It’s difficult to find someone who doesn’t rave about at least one product.
On Amazon, you’ll find nothing but 4-Star reviews and higher:
Now let’s get back to the Math. We believe Roth analyst, George Kelly, has the best grasp on Sow Good out of all the current research available. Here is where Roth is with its model:
Let’s say Sow Good does $175M in sales next year.
Let’s say SOWG puts $5M into Marketing next year.
Then we also have a full year of $3.5M in additional Rent and call it another $6.5M of OpEx for the New Facility and Headcount.
So, we’re at OpEx of $34M vs ~$19M Roth model.
So, at a 40% Gross margin, we get to $36M in Adj EBITDA next year.
Discount for Taxes and Interest on remaining converts – by then, they should be retired for Cash – and we arrive at $25M in fully-taxed EPS.
Let’s assume Sow Good raised $25M, along the way, to ramp the New Facility to a $250M capacity level. At 12M fully diluted shares, we are looking at $2 in EPS for next year. Keep in mind we threw the Kitchen Sink into this model.
Also, Sow Good already did 21% EBITDA Margins and Management, per the May S-1, is laser-focused on Margin Expansion. Look at all the initiatives that are planned to increase margins:
We actually believe there is potential for $2.50, fully-taxed next year.
When you see this math, it is easy to see how SOWG quickly moves to $40+ in the next 6-9 months. In an Uber Bullish Scenario, we could see potential upside to $60-$100 over the next 18 months. If the company continues to execute and has another outsized year in 2026, it is not hard to envision a larger entity buying Sow Good outright for $1-$1.25B based off its $250M-$300M in Sales, before the growth slows.
There are numerous risks to be mindful of related to Sow Good.
We are currently long shares of SOWG and would recommend new investors to buy ANY dips down to the low-$20’s and high-Teens. We think the stock is very attractive anywhere under $25, so tactically it makes sense to round out your position on any move to new 52wk Highs.
Trading activity has increased since the company’s strong Q1 Report on May 15, but keep in mind that technicals are much less likely to be effective in such a thinly-traded stock.
STOP LOSS: We plan to use a Time Stop on Sow Good, given our own high Conviction Level 10. Investors could pare some risk on a high-volume break of the 50day SMA.
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Disclosure: We are long SOWG. We may change our positioning at a moment’s notice, without notifying you of any such moves.
Disclaimer: All of the information in this piece has been prepped by Inflections Consulting LLC. Readers should know that it would be incorrect to assume that past and future names of interest will be profitable or will not turn into a loss. Inflections Consulting LLC does not and will not assume any liability for any loss that could occur if you invested in such stocks written about.
All the content in these reports have been prepared by Inflections Consulting LLC. We believe our sources to be reliable, but there is no guarantee here. The information in this piece does not constitute either an offer nor a solicitation to buy or sell any of the securities name-dropped in this piece.
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In no shape or manner should the views expressed in this piece be considered investment advice. We reserve the right to change our positioning in our SOWG stock and options positions at a moment’s notice without updating you on any such change in opinion and positioning. That may be tomorrow, even before our price target is hit. Facts change, our opinions can change quickly too.
Investors need to consider their investment risk tolerance before investing in the stock market and also before investing in any of the stocks mentioned in this report.
