Investing.com -- Ningi Research has reiterated its short stance on Vita Coco (NASDAQ: COCO ), following the announcement of new tariff policies by U.S. President Trump. According to Ningi, Vita Coco, which imports all of its products, primarily from Southeast Asia, is expected to be heavily impacted by these policies.

Trump said Wednesday the United States will impose reciprocal tariffs of at least 10% on all imported goods, with higher reciprocal rates for some nations that will be equivalent to "half" of the rate they levy on U.S. exports. The Philippines, Vita Coco’s source for coconuts, has accrued a 17% tariff, with potential for a full reciprocal tariff of 34%.

Ningi estimates that Vita Coco could experience a decrease in gross profit of $78 million for the fiscal year 2025 (FY25). The company, which operates an asset-light business model, is highly dependent on foreign suppliers.

Based on the White House tariff schedules and import records analyzed by Ningi, the new measures are expected to impose an average tariff rate of 21.8% on Vita Coco’s product lines. This could result in a decline in Vita Coco’s gross margin from 36.41% to 22.55% for FY25, assuming a tariff rate of 21.8%.

Ningi suggests that even a scenario analysis with lower tariffs than their estimate still indicates a significant reduction in gross profit and margins. The new tariff policy expands Ningi’s short thesis on Vita Coco, which already includes structural issues and lost business with Costco (NASDAQ: COST ) identified in a report last week.

Investors seem wary of Vita Coco’s tariff risks, as the stock has ticked down 8.1% in Thursdays trading, caused by investor’s cautiousness and supported by Ningi’s short report reaffirmation.

On March 26, Ningi Research had initially announced its decision to short the shares of Vita Coco, highlighting several concerns. These included a sluggish year-over-year sales growth, a decrease in market share, and the impending termination of a significant contract with Costco.

In 2024, Vita Coco’s sales growth was a mere 4.5%, significantly trailing the ’Better for you’ beverage category’s growth of 15.4%. Additionally, Vita Coco’s market share has been on a downward trajectory, falling from 45% in 2023 to 41% in the fourth quarter of 2024.

Costco’s decision to end its contract with Vita Coco is expected to result in a $90 million revenue shortfall for Vita Coco by the end of 2025. According to Ningi, Costco’s decision was influenced by Vita Coco’s unreliable delivery in the past year, leading Costco to seek alternative suppliers for its Kirkland brand coconut water.

Ningi also highlighted Vita Coco’s internal challenges, such as undisclosed related-party transactions and supply chain mismanagement. These issues resulted in inventory shortages in 2024, strained retail partnerships, and sales declines. For example, Walmart (NYSE: WMT ) has relegated Vita Coco’s branded products to less frequented aisles and significantly reduced the number of stock-keeping units (SKUs), resulting in a double-digit sales decline across Walmart stores.

Ningi accused Vita Coco of misleading investors about its market share, growth, and performance. It stated that Vita Coco’s attempts to diversify its product line have been unsuccessful, with several product discontinuations and the indefinite pause of its ’Ever&Ever’ water line. Furthermore, Vita Coco’s acquisition of the energy drink ’Runa’ was labeled as disastrous by Ningi, which alleged that Vita Coco failed to write off $7.7 million in goodwill related to Runa, impacting the company’s EBITDA.

Ningi criticized Vita Coco’s executive team for cashing in on what it considers an overvalued company valuation, with the CEO and other insiders selling over $58 million in stock after raising revenue guidance. Ningi concluded that Vita Coco’s stock is overvalued and projected a 49% downside for the stock based on its assessment.

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