Why I'm Not Buying Amplify Snack Brands' IPO


  • Concentrated shareholders will own around 75% of the newly public company.
  • BETR will not receive the proceeds from the IPO.
  • The company faces a number of risks in a highly competitive industry with low barriers to entry.

Amplify Snack Brands (NYSE:BETR-OLD) is scheduled to start trading on or about August 5, 2015.

The bull case for the upcoming IPO is simple: The company, which owns two brands in the "better for you" or "healthier" segment of the snacks industry is growing sales and market share in a growing market. Its SkinnyPop Popcorn brand competes in the $966 million ready to eat popcorn market (i.e, it doesn't include products that you stick in the oven or microwave). The market segment has grown at a compound annual rate of 14.6% since 2010. It grew 22.6% in 2014. SkinnyPop commanded a 12.1% share in 2014, nearly doubling its market penetration from the prior year. During the same period, net sales increased from $55.7 million to $132.4 million. The company's gross margin was 56.1% in 2014 and 55.1% in the quarter ending March 31, 2015.

The company earned $0.07 per share in the quarter ending March 31, 2015, up from $0.02 from the same quarter in 2014. With an expected price range of $14 to $16 per share in Amplify's IPO offering (the stock may be substantially higher or lower when it starts trading), the latest audited per share figure annualized gives BETR a P/E of 50 to 57.14.

That seems a reasonable price to pay for such growth, especially since there is ample room for expansion. SkinnyPop's distribution points have increased from 49 in 2013 to 136 in 2014. The average for the top 25 salty snacks brands, however, is 919, according to Amplify. Add to this increased same store sales, the introduction of new flavors (87% of 2014 sales were of the original flavor), and expansion into foreign markets, and you have the makings of a long term growth story.

But I'm not buying. Here's why:

Concentrated Shareholders Risk

This article was written by

Devin Hobbes is the author of the soon to be updated Dividends: Pros, Cons, Sources, and Strategies.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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