• Hot Stove Analysis

The validity of a lawsuit could present traders with a huge opportunity.

As a shareholder, a lawsuit is something you never want hanging over a company you own – but that’s exactly what’s happening with National Beverage Corp. (Nasdaq: FIZZ). Whether or not the lawsuit has merit could lead to a powerful investment opportunity.

Here’s the rundown…

Founded in 1985 and headquartered in Fort Lauderdale, National Beverage sells a portfolio of waters, juices, energy drinks and carbonated soft drinks under the brand names of LaCroix, LaCroix Cúrate, LaCroix NiCola, Shasta, Rip It, Everfresh, Everfresh Premier Varietals and Mr. Pure.

If you’re like me, someone in your household comes home with a case of flavored LaCroix every week – and leaves empty cans all over the house.

Based on the popularity of LaCroix, shares of National Beverage moved from $40 up to $125 in less than a year.

But then came the lawsuit.

Earlier this month, Chicago-based law firm Beaumont Costales filed a class-action lawsuit claiming that LaCroix sparkling water contains artificial ingredients.

The suit accuses LaCroix of using ingredients the FDA identifies as “synthetic,” which include things like…

• Limonene (which can cause kidney toxicity and tumors)
• Linalool propriate (which is used to treat cancer)
• Worst of all, Linalool (which is used in cockroach pesticide).

The allegation claims National Beverage knew about the synthetic chemicals used in LaCroix – and intentionally misled customers into believing it is all natural. The suit seeks damages for those who purchased LaCroix under this false advertising.

This negative press was the trigger that pushed National Beverage from $125 down to current levels – around $90.

Here’s where the opportunity presents itself…

You see, on October 18, National Beverage announced that LaCroix was tested – and confirmed as “natural” – by an independent laboratory. A lab accredited by the International Standards Organization tested vendor-supplied ingredients to confirm they were indeed “derived from natural sources, such as fruits, instead of being created in a lab. The rigorous standards of the American Society for Testing and Materials conclusively proved that no trace of artificial or synthetic additives was found.”

National Beverage also added that the Food and Drug Administration said this…

The description “natural” on a food label is truthful and non-misleading when “nothing artificial or synthetic (including all color additives, regardless of source) has been included in, or has been added.”

Here’s the bottom line…

Does the lawsuit have merit?

Or is National Beverage a victim of a junk science lawsuit?

This certainly bears watching. If the lawsuit gets thrown out, buying National Beverage at these levels could be a tremendous opportunity. A retest of the $125 high could most certainly be “in play” if the legal overhang gets lifted.