Vita Coco (COCO): A Contrarian Play in the Wake of Russell 3000E Index Removal

The recent exclusion of Vita Coco (COCO) from the Russell 3000E Index has sparked a wave of passive selling, pushing shares lower on purely mechanical index reconstitution activity. For contrarian investors, this presents a rare opportunity to buy a growth-oriented beverage company with a robust earnings trajectory and strong industry positioning at a discounted price. Let's dissect the fundamentals behind this dislocation between sentiment and substance.

The Catalyst: Index-Driven Selling vs. Fundamental Strength

Index reconstitution events like the Russell 3000E rebalance often trigger indiscriminate selling as passive funds liquidate positions to align with new index constituents. COCO's removal from the index—despite its consistent revenue growth and premium industry rank—has likely accelerated this process. The disconnect becomes evident when comparing the stock's technical pressure with its underlying financial health.

Why the Fundamentals Deserve Attention

1. EPS Growth Outperformance:
   Zacks estimates project an 18.75% year-over-year EPS increase for the current quarter, driven by expanding margins and rising demand for premium hydration products. Full-year 2024 earnings are forecast at $1.15 per share, a 7.48% rise over 2023. This growth trajectory contrasts sharply with the stock's near-term volatility, suggesting a valuation misalignment.

2. Premium Industry Positioning:
   The Beverages - Soft drinks industry, where COCO operates, holds a Zacks Industry Rank of 53—placing it in the top 22% of all 250+ industries analyzed. This ranking reflects strong sector momentum, with top-ranked industries historically outperforming the broader market by 2-to-1 margins. COCO's focus on high-margin, health-conscious beverages positions it to capitalize on this tailwind.

3. Undervalued on a Growth Basis:
   While COCO's Forward P/E of 30.18 exceeds its industry average of 19.63, its PEG ratio of 1.82 (vs. 2.55 for the industry) suggests the stock is undervalued relative to its growth rate. This metric implies investors are underpricing the company's ability to sustain mid-teens EPS growth, creating a margin of safety for long-term holders.

Navigating Near-Term Volatility

The recent spike in implied volatility for COCO's July 2025 $17.5 Call options signals market uncertainty, but this presents an entry point for investors willing to look past short-term noise. A Zacks Rank of #3 (Hold), while neutral, aligns with the idea that the stock is neither overbought nor oversold. Crucially, the lack of downward revisions to earnings estimates in the past month underscores stability in COCO's operational execution.

Investment Thesis: Buy the Dip, Target the Catalyst

The upcoming earnings release—a key catalyst—could reanchor the stock to its fundamentals. If COCO delivers on its $0.38 EPS estimate, it would validate its growth narrative and potentially trigger a reassessment of its Zacks Rank. Pairing this with the Beverages sector's favorable industry dynamics, the stock appears poised for a rebound.

Risks to Consider

• Consumer Sentiment: A slowdown in premium beverage demand due to economic headwinds could pressure margins.
• Competitor Moves: Aggressive pricing from established beverage giants could erode COCO's market share.

Final Take: A Contrarian's Bargain

When index-driven selling meets a company with strong growth metrics and top-tier industry positioning, the result is often a buying opportunity. COCO's 18.75% EPS growth, Zacks Industry Rank of 53, and undervalued PEG ratio suggest the stock is pricing in short-term noise rather than long-term potential. Investors with a 6-12 month horizon should consider accumulating shares here, particularly if the stock dips below $16, where support has held in recent months.

In volatile markets, the best opportunities often arise from the herd's haste. COCO checks all the boxes for a contrarian play—now is the time to act.