One of the hottest areas of growth this year is organic foods, and WhiteWave Foods (WWAV) seems to me to be the best stock in the sector. WhiteWave is a diversified food company, with five divisions. Here’s 2014 Q2 sales and year-over-year growth (I rounded sales to the nearest $100 million):
- International Delight & Land O Lakes creamers: $900 million, +5%
- Silk soy & almond milk & beverages: $700 million, +13%
- Horizon Organic milk & dairy: $600 million, +8%
- Earthbound Farm organic produce: $600 million, +11%
- Alpro, the European division: $500 million, + 26%
WhiteWave just acquired Earthbound Farm earlier this year for $600 million, so this years sales figures got a big boost. Last qtr the company had a 30% gain in sales, but only 11% was organic. And now the company is buying So Delicious for $200 million. Also, the company has a 50/50 joint venture with Mengniu Dairy in China to launch premium plant-based products to the world’s largest consumer group by the end of this year.
Everything sounds great, except for the fact WWAV sells for 36 times profits. Food companies usually get P/Es in the teens, or maybe in the 20s if they are growing fast. But WWAV seems a bit too high to buy.
One Year Chart
One of the things that has helped this stock is earnings estimates have been increasing steadily. When 2014 began WWAV was expected to grow profits 15% this year, now its 34%. Look at how Horizon has jolted profits the past couple of quarters.
Another thing is WWAV grew profits 23% in 2013, and profit growth is expected to slow to 19% next year. So to me 36 times earnings is a bit too rich.
Fair Value
I really want to buy this stock, for a couple of reasons. First the company is growing fast and in an expanding sector (organic foods). Second, food stocks are dependable because people gotta eat. But I also want to make money, and it seems like this stock could be this price a year from now.
Sharek’s Take
Like many stocks on my radar, WhiteWave Foods is too-high to buy. The story is great, and investors have bought into it. The stock market is currently in a correction, and if WWAV comes down to 25 times earnings, or $25, I’d probably put it in my cart, but there’s a fat chance of that happening.
View the Earnings Table here.View the Ten Year Chart here. View the Profit History here.
