Turning Point Brands [TPB]
Spot $75.71 · 19.475m shares · market cap $1,474.5m · net debt $118.0m · EV $1,592.5m · TTM revenue $480.9m (to 2026-03-31) · EV/Sales 3.31x · EV/EBIT 18.7x on TTM EBIT of $85.0m
EV is stated LEASE-EXCLUSIVE. Operating lease liabilities are immaterial on this filer (<$5m). Net debt = cash $192m − total debt $310m. Economic net debt is $132m once the 50%-owned half of the ALP VIE's $28.1m of consolidated cash is removed; that basis is stated but the headline uses the GAAP consolidated figure.
Test applied: profitable; operating margin low-variance across ≥5 years; no structural regime change.
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM | Q1'26 | |
|---|---|---|---|---|---|---|---|---|
| Operating margin | 15.9% | 20.3% | 24.7% | 24.7% | 24.0% | 20.6% | 17.7% | 10.0% |
| Gross margin | 46.9% | 48.9% | 55.4% | 56.3% | 55.9% | 57.1% | 56.8% | 55.0% |
Declared A — profitable in every year of a nineteen-year AV record, no acquisition of scale, consumable nicotine demand with no exogenous cycle to date. It is not STATE B: nothing here is driven by fab utilisation, memory pricing or freight.
But two regime breaks are on the record and must not be smoothed over:
cagr_base_revenue of $321.2m is FY2022 — the post-divestiture trough — so its 13.0%
"demonstrated CAGR" measures recovery off a divested base. Arithmetically correct, economically
a different question.evidence_grade: B−. Segment disclosure is genuinely good — two segments, revenue, cost of
sales, gross profit, "other segment items" and operating income for each, three years and
quarterly. Absent: any A&P line, any volume/price split, any named PMTA product line, any FDA
decision date.
valuation.md rule 2: "What a below-current terminal margin requires is an explicit causal
bridge, not prohibition." Here is the bridge.
Opex bridge reconciled from the 10-K segment note, FY2025 (% of net sales of $463.1m):
| line | FY2025 $m | % of sales |
|---|---|---|
| Gross profit | 264.3 | 57.1% |
| Other segment items (primarily selling and marketing) | 96.3 | 20.8% |
| Corporate unallocated (incl. $4.8m PMTA) | 72.7 | 15.7% |
| Consolidated operating income | 95.3 | 20.6% ✔ |
Terminal bridge (year 5) — and the causal argument for each line:
| terminal | FY2025 | Δ | cause | |
|---|---|---|---|---|
| Gross margin | 56.0% | 57.1% | −1.1pp | Mix. Modern oral carries a lower gross margin than legacy MST — Stoker's segment gross margin fell 57.5% → 54.0% in Q1'26 as modern oral scaled, and Zig-Zag's fell 55.4% → 53.7% on tariffs. Modern oral is contract-manufactured, not owned-plant. As modern oral goes from ~29% to a majority of revenue, the blended gross margin follows it down. |
| Selling & marketing (other segment items) | 23.0% | 20.8% | +2.2pp | This is the A&P assumption and it is the opposite of leverage. Stoker's S&M intensity has gone 13.6% → 15.9% → 20.8% → 31.5% in Q1'26. Nicotine pouches are a share war against Zyn, Velo and On!; the growth is the trial and shelf spend. I model it declining from Q1'26's 31.5% (a launch peak) but settling above the FY2025 level, not below it. |
| Corporate unallocated | 15.0% | 15.7% | −0.7pp | The only genuine leverage assumed. FY2025's +34.3% jump was driven by joint-venture expenses; PMTA spend ($4.8m) caps out because the company states it will file no further applications. |
| m_EBIT,T | 18.0% | 20.6% | −2.6pp |
Constraints checked:
- m_EBIT,T (18.0%) ≤ m_gross,T (56.0%) ✔ — 38pp of headroom.
- Terminal is 2.6pp below the FY2025 actual and 0.3pp above the TTM actual of 17.68%. The
DATA_DEFECTS.md warning — "if your terminal margin is below the company's own trailing actual,
that is almost certainly an error — say why it is not" — is answered directly: it is below
FY2025 because the revenue mix in year 5 is a different mix, and the incoming mix is
lower-gross-margin and higher-S&M. It is above TTM because Q1'26's 10.0% is a launch quarter, not
a run rate. Both directions are argued rather than asserted.
- It is not monotonicity-violating: valuation.md rule 2 requires V_bull > V_base > V_bear,
not m_bull > m_base > m_bear. A bull case here pairs a lower terminal margin with much higher
revenue — modern oral winning national share — and that is a legitimate, higher-value outcome.
What this terminal margin assumes about A&P, stated as the brief requires: it assumes A&P intensity RISES 2.2pp and never levers. That is the honest reading of a business whose growth segment tripled its selling intensity in nine quarters while its operating income fell.
reverse_dcf.py --spot 75.71 --shares 19.475 --net-cash -118 --revenue 480.9
--years 5 --wacc 0.095 --terminal-margin 0.18 --exit-multiple 15.0
--fcf-margin 0.008 --hist-cagr 0.130
--fcf-margin passed as +0.008 (TTM FCF $4.0m / revenue $480.9m = +0.83%). The sign is
positive but the magnitude is near zero, so the interim-FCF correction is worth well under 1pp
here — the smallest correction of the three names in this cluster. The sign matters and it is
positive, so omission would have overstated required CAGR and suppressed a PASS, not manufactured
one. Basis: trailing TTM. Forward basis would be worse, not better — Q1'26 CFO was −$22m and
the company is building manufacturing capacity, so if anything the forward FCF margin is negative
and the correction would invert. Flagged as the GOOGL pattern in miniature: a company crossing
toward negative free cash flow has a trailing sign that misleads about the direction of its own
correction. I have used trailing, stated it, and flagged that forward would move the other way.
| held fixed | value |
|---|---|
| terminal margin | 18.0% |
| exit multiple | 15.0x EV/EBIT |
| WACC | 9.5% (small cap, 54.2% realised vol, $310m of debt) |
| horizon | 5 years |
| FCF margin | +0.83% (trailing TTM; forward likely negative — flagged) |
Required revenue CAGR: 13.8% Demonstrated: 13.0% (FY2022 $321.2m → FY2025 $463.1m; base year is the post-divestiture trough) Margin: demonstrated − required = −0.8pp
Verdict: FAIL — but marginally, and the correct label is FAIL rather than PASS WITH ARGUMENT.
The framework allows PASS WITH ARGUMENT where "the price requires more than demonstrated and there is a specific, evidenced reason (a named product cycle, mix shift, pricing action)." TPB has a named product cycle — modern oral, $107.7m of FY2025 growth, sized by the company. So the question is genuinely live.
I am scoring it FAIL, for a reason that is evidenced rather than narrative: the named product cycle is real but its unit economics at the operating line are currently negative on the increment. Stoker's added $28.4m of revenue in Q1'26 and lost $4.4m of operating income. A PASS WITH ARGUMENT requires the mix shift to be accretive; this one is dilutive as measured. If the Q2'26 print shows Stoker's operating income growing on growing revenue, this flips.
Implied compression: TPB trades at 18.7x TTM EV/EBIT. Solving at 15.0x assumes −19.8% compression.
| exit EV/EBIT | required CAGR | vs demonstrated 13.0% |
|---|---|---|
| 8.2x (warranted at steady state) | ~24% | −11pp FAIL |
| 12.0x | 17.0% | −4.0pp FAIL |
| 15.0x (base) | 13.8% | −0.8pp FAIL |
| 17.0x | 9.5% | +3.5pp PASS |
| 18.7x (no compression) | ~7.5% | +5.5pp PASS |
| 20.0x | 6.2% | +6.8pp PASS |
Flip point sits between 15x and 17x — i.e. the name passes only if it does NOT de-rate. For a business whose consolidated operating income fell 46.2% year over year in the most recent quarter, underwriting zero multiple compression is not conservative.
steady_state_check.py flaggedsteady_state_check.py --ticker TPB --terminal-margin 0.18 --exit-multiple 15.0
EXIT_MULTIPLE_UNWARRANTED_AT_STEADY_STATE: "15.0x is 1.8x the 8.2x
warranted at a 11% steady-state ROIC. It is justifiable only if today's returns persist forever,
which is the assumption under test."My response: this flag has more force on TPB than on the other two, because TPB's 10.9% ROIC is barely above its ~9.5% cost of capital. A business earning ~1.4pp above WACC does not deserve an 18.7x EV/EBIT multiple on any steady-state logic; it deserves something near book-value economics. The 15.0x base is the traded record's compromise, not a warranted number, and at the warranted 8.2x the name fails by roughly 11pp. Recorded as the single strongest objection to owning this.
Multiple history (own, EV/Sales, as-known TTM revenue lagged 45 days):
| window | n days | min | p25 | p50 | p75 | max | current | percentile |
|---|---|---|---|---|---|---|---|---|
| Full, 2020-07-27 → 2026-07-29 | 1,506 | 1.17 | 1.45 | 2.15 | 3.45 | 6.25 | 3.31x | 73rd |
| Post-divestiture, 2023-01-01 → | 895 | 1.20 | 1.42 | 2.52 | 3.99 | 6.25 | 3.31x | 54th |
The post-divestiture window is the one I use, and the reason is a defect the full series contains:
the full window spans the Creative Distribution Solutions wind-down, which cut TTM revenue from
$445m to $321m mechanically. An EV/Sales series across a divestiture prints a spike that is a
denominator artifact, not a re-rating. Using the full window's 2.15x median would import that
artifact into the anchor. This is the "regime change" case valuation.md names, and the response
is to sub-window rather than to declare UNIDENTIFIED — because a 895-day post-break window with
1.20x–6.25x dispersion is a genuinely informative sample, unlike SN's.
Build:
- NTM revenue = 5/12 × FY2026 consensus $526.5m + 7/12 × FY2027 consensus $590.6m = $563.6m
(AV EARNINGS_ESTIMATES, 4–5 analysts — thin coverage, stated).
- Anchor multiple 2.52x = the 54th percentile, i.e. the median of the post-divestiture
window, which is where the stock currently sits.
- EV = 2.52 × $563.6m = $1,420.3m; less net debt $118.0m = $1,302.3m equity; ÷ 19.475m shares.
- Target $66.85, −11.7% to spot.
At the p75 of 3.99x the target is $109.4 (+44.5%); at the p25 of 1.42x it is $35.0 (−53.8%). The dispersion is enormous and that is the honest picture of a $1.5bn small cap at 54.2% realised vol with a binary regulatory overhang.
Named product events inside 12 months (see TPB_Catalyst_Calendar.md): ALP 12mg strength
introduction (2026, month not disclosed); the option to acquire the SBB Canadian distribution
business becomes exercisable March 2027 at ~$20.0m. No FDA determination date exists.
Estimate-revision direction (AV, 30-day trailing): FY2026 EPS 0 up / 3 down; FY2027 0 up / 3 down; Q3'26 0 up / 1 down. Uniformly negative across every horizon — the only name of the three with no upward revisions anywhere.
Named cause: an FDA Marketing Denial Order on either pending PMTA product line.
This is a genuinely existential, genuinely undated risk. TPB has two product lines under PMTA review, does not name them, and there is no FDA decision timeline. An MDO on the modern-oral line removes $107.7m of FY2025 growth and 105.2% of consolidated growth at a stroke, leaving a Zig-Zag business whose operating income is already down 13.7% over two years plus a legacy MST business.
Quantified: ex-modern-oral, FY2025 revenue is roughly $355m (Zig-Zag $178.5m + Stoker's ex-modern oral ~$177m) at a blended operating margin nearer FY2023's 24.7% on the legacy mix — EBIT ~$88m — but a declining, terminal-value-impaired asset trades at 8–10x, not 15x. At 9x: EV $792m, less $118m of debt, $34.6/share, −54.3%.
A second, non-regulatory path to a similar number: modern oral fails to reach operating breakeven at scale and the S&M spend proves permanent. Stoker's Q1'26 already ran at a negative incremental operating margin; if that is structural rather than a launch phase, the whole growth engine is a value-destroying reinvestment of a 10.9%-ROIC business's cash flow.