Rritual Superfoods has a huge upside, says Clarus

Clarus Securities analyst George Ulybyshev is staying bullish on Rritual Superfoods (Rritual Superfoods Stock Quote, Chart, News, Analysts, Financials CSE:RSF) after the company announced its products will be sold in up to 1,000 Rite Aid retail stores across the United States. In an update to clients on Tuesday, Ulybyshev maintained his “Speculative Buy” rating on Rritual, saying the health and wellness products company should see a 4x revenue boost by 2022.

Vancouver-based Rritual Superfoods, a premium plant and mushroom-based company with products featuring adaptogen (herbal pharmaceutical) ingredients, made the Rite Aid announcement on Tuesday, with Rritual aiming for a rollout across the US in the second and third quarters of this year.

Rritual said Rite Aid will carry its full product line of Chaga IMMUNE, Lion’s Mane FOCUS and Reishi RELAX, all of which are USDA-certified organic, caffeine-free and contain Rritual’s proprietary Immune-Synergy Six Mushroom Blend.

Rritual said it has scaled up production to meet the demand for its products and has a sales and marketing focus this year on major retailers in the US.

“This first national retail rollout is a major achievement for the Rritual brand. It validates both supply and demand for the category, specifically, our product quality and the rapidly growing interest of consumers in functional superfoods,” said Mr. David Kerbel, Rritual CEO, in a press release.

Rritual’s share price has shot up since its IPO debut on March 5, with the stock now up a quick 125 per cent.

But Ulybyshev sees further upside. With his update, the analyst has maintained his $1.50 per share target price, which at the time of publication represented a projected one-year return of 76.5 per cent.

On the Rite Aid event, Ulybyshev said it’s further support for Rritual’s business.

“We view today’s announcement as a major milestone for the Company,” Ulybyshev wrote in a press release. “With a total of 2,450 locations across 18 states and over 20 billion in annual sales, Rite Aid is one of the largest drugstore chains in the US.”

“In addition to its retail pharmacy business, servicing close to four million members nationwide, Rite Aid offers its customers a variety of private brand health and wellness products in its stores, which creates an opportunity for Rritual to tap into a sizeable retail market across multiple states,” he said.

“We believe that the Company’s ability to solidify commitments to its brand of products from a large retail chain early on is a clear sign of retailer confidence in the quality of Rritual’s products and its supply chain. It is also a big vote of confidence in the Company’s management team and its ability to get products to market,” Ulybyshev wrote.

Ulybyshev said he’s keeping his forecast model unchanged for the time being, calling for 2021 revenue and adjusted EBITDA of $5.1 million and negative $3.7 million, respectively, and 2022 revenue and adjusted EBITDA of $21.2 million and $1.1 million, respectively. Breaking down this year’s numbers, the analyst is calling for zero first quarter revenue, $1.0 million in the second quarter, $1.5 million in Q3 and $2.6 million in Q4.

With Rritual’s products expected to be carried in as many as 1,000 Rite Aid locations in the US by the end of Q3/21, almost a third of our total year-end store target, today’s announcement provides significant support to our current sales estimates,” Ulybyshev wrote.

“We also continue to see substantial upside potential to our current revenue forecast, driven mainly by additional North American store penetration, online expansion, and the launch of new product lines,” he said.

As to RSF’s valuation, Ulybyshev estimates the stock is currently trading at 14.0x his 2021 price-to-sales multiple and 3.4x his 2022 price-to-sales multiple, which compare to the median of the company’s peer group at 14.9x and 7.5x, respectively. The analyst’s $1.50 per share target equates to a 6.0x 2022 revenue multiple.

Founded in 2019, Rritual Superfoods filed its IPO prospectus this past December and closed in early March where the company raised gross proceeds of $6 million, issuing 20 million share-and-one-half-warrant units at $0.30 per unit.

Rritual plans to start retail in the US before commencing a rollout in Canada, with the company having earlier this month launched its US-facing e-commerce platform. On March 17, Rritual announced it has completed now two commercial-scale manufacturing runs and is gearing up for a third production run in early April, expected to be triple the size of its second run.

“We have ramped up securing raw materials and scheduled commercial scale production runs,” said Kerbel in a press release. “Maintaining a consistent and scalable manufacturing cycle is a core focus as we look forward to bringing our products to the major retailer shelves soon. Our team has been carefully and methodically building our logistics infrastructure which will allow for not only our needs today but also will allow us to achieve sustainable growth into the future.”