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(Bloomberg) -- The maker of cult beverage La Croix has seen its shares jump 120 percent in the past year. Driven by seltzer-sipping millennials, it’s a run-up that a few analysts say is at risk of popping.

"It’s not that we don’t like the company, it’s that it’s too expensive," Credit Suisse analyst Laurent Grandet said in a phone interview. He rates the $106 stock at underperform with a price target of $86 a share.

A $42 million market cap company in 1992, National Beverage Corp. now weighs in just shy of $5 billion. While most analysts agree the shares overvalued, their price targets range anywhere from $40 to $135, according to Bloomberg data.

CEO Nick Caporella owns almost 74 percent of National Beverage’s shares, leaving only 26 percent for investors, which makes the stock volatile, Grandet says. The company’s shares are recovering from a 12 percent drop last week following Coca-Cola Co.’s purchase of Topo Chico, a sparkling mineral water cult favorite in Texas. Short interest was 12.6 percent of float as of Oct. 12, compared to 0.24 percent for Coca-Cola, 0.11 percent for PepsiCo Inc. and 2.35 percent for Dr Pepper Snapple Group, data from Markit show.

National Beverage has carved out a niche among bigger players with only two ingredients: carbonated water and its so-called "natural essence oil" flavoring. Grandet estimates LaCroix accounts for 35 to 40 percent of the company’s portfolio by value. The Fort Lauderdale, Florida-based company also sells Shasta sparkling water, Faygo soda, Rip It energy drinks and Everfresh juices, all of which Grandet estimates to be growing at flat to low single-digit rates.

"La Croix has a good fan base, it’s one of those products that comes in every once in awhile," said Kenneth Shea, Bloomberg Intelligence senior analyst for food and beverage. In this slow-growth global environment, he sees beverages as a bright spot. The industry’s high concentration -- PepsiCo Inc. and Coca-Cola Co. capture more than half of the market -- creates enormous pricing power that drives good valuations, Shea said. 

Sparkling water’s U.S. market penetration remains low at 3 percent versus about 30 percent in Western Europe, according to Susquehanna analyst Pablo Zuanic.

Zuanic started covering National Beverage on Oct. 2 with a neutral rating and $135 price target. He sees bulls banking on two scenarios for National Beverage: expanded distribution to new channels such as convenience stores and Wal-Mart Stores or potential takeout by companies such as Coca-Cola, PepsiCo, Nestle SA and Danone SA.

Earnings Star

By virtually any measure, La Croix has made National Beverage an earnings star. Its per-share profit growth has accelerated in each of the past three years, reaching 75 percent in 2016. The company beat analyst expectations for revenue and earnings per share in each of the past four quarters, driving shares higher after all but one of those reports.

But analysts are forecasting a 27 percent increase in earnings in its fiscal year ending June 2018, potentially a perilous slowdown for a stock trading at 34 times estimated earnings. Representatives for National Beverage didn’t respond to requests from Bloomberg seeking comment. 

Grandet, who has tried to meet with National Beverage several times in the past, finally got the chance to see the "wizard," Caporella, last Friday at the company’s annual general meeting. Following the meeting, he noted to clients the absence of initiatives specific to convenient store expansion during the presentation. He also said a takeout seems less likely as potential acquirers engage in their own seltzer endeavors instead.

"If you think about it, what this company has is the brand name,” Grandet said. "It is very strong with millennials and they tend to turn their back to big brands. But there is no IP, so every one can do the flavored water and basically you come back to the valuation."

To contact the reporter on this story: Kristy Westgard in New York at kwestgard1@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Catherine Larkin, Courtney Dentch

©2017 Bloomberg L.P.

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