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Should you Take a Shot of Jose Cuervo’s IPO?

February 8, 2017, 6:10 PM UTC

Jose Cuervo, the biggest tequila maker in the world, is set put its IPO on the Mexican stock market today. Shares of the company are expected to be priced between 30 and 34 Mexican pesos, which translates to a range of $1.46 to $1.65 at current exchange rates. The offering was announced in late January.

The Mexico City-based company, which makes up 30% of the worldwide tequila market and brought in nearly $1.2 billion in revenue in 2015, is looking to raise around $700 million by offering up a 13.3% stake in itself. That would value Cuervo at $5.6 billion.

That will make it a relatively expensive IPO to buy into. The offering price values Jose Cuervo’s stock at roughly 21 times earnings. That’s a lot to pay for company in the alcohol business, which is a dependable but not generally considered a fast growing business.

Nonetheless, tequila has been significantly growing in popularity in recent years, especially in the U.S. Sales of the spirit have gone from 7.2 million cases in 2002 in the U.S. to 14.8 million in 2015, according to the Distilled Spirits Council of the United States, which reported yesterday that liquor sales in general rose last year. In 2016, U.S. consumers bought 7% more tequila than they did the previous year. Jose Cuervo’s own sales have been growing more than 20% in recent years.

Cuervo seems to have carefully chosen the timing of its IPO. Last year, the company looked to ride tequila’s wave of popularity but twice put plans to go public on ice amid the uncertainty surrounding the U.S. presidential election. Then-candidate Donald Trump repeatedly disparaged Mexico on the campaign trail and threatened to impose an import tariff on Mexican goods. Now it seems that Cuervo, which is very reliant on the North American market, with U.S. and Canadian sales accounting for 64% of its revenue, is comfortable enough to move forward.

What’s more, for all his bluster about Mexico, Trump’s moves may not actually end up hurting Cuervo very much, if at all. The value of the peso dropped to an all-time low immediately after his election, and now sits around 15% lower than it was pre-election. But the weakened strength of the peso will actually end up helping Cuervo, since that will translate to a cheaper sales price in the U.S., which will help offset any tariff imposed on Mexican goods. And even if the price of a bottle goes up a dollar or two, the difference shouldn’t affect sales much as drinkers are generally known to have a strong loyalty to their brands preferred brands.