Whole Foods, Annie’s Stand Out Among Organic Purveyors, But Two Lesser-Known Stocks Entice
Anyone who has stepped into a Whole Foods store within the past few years knows that the hunger for organic and natural foods is generating longer lines at checkout counters as the quest for safe foods has gone mainstream. It also is producing fatter bottom lines on the part of companies benefitting from the boom – and Whole Foods Market (WFM), while it may be the most obvious candidate, isn’t the only one available to play this theme.
Consider The Fresh Market (TFM), for instance, the growth in whose profits has greatly outstripped the increase in its operating expenses over the last year. It has kept its costs lower by having fewer full-time employees, and not opening as many of its stores in premium locations, betting (correctly) that its target customers will go out of their way to patronize their stores. Unsurprisingly, its EBITDA margins, on a trailing 12-month basis, exceed those of Whole Foods.
Valuations for both Fresh Market and Whole Foods remain rich, unsurprisingly, based on PE ratio. Both command a healthy premium to the broad market, reflecting the demographics that have fueled demand growth and the fact that these and other 21st-century purveyors of healthy food have created stores that offer polished design and appetizing displays.
The newest arrival on the scene is Annie’s (BNNY), whose signature rabbit-shaped pasta is organic – and explains the company’s choice of stock symbol when it went public earlier this year. Since that time, the company’s share price has come down from its peak, but it still is outperforming the S&P 500. Its products are found on store shelves not only at retailers like Whole Foods, but also at ‘mainstream’ retailers like Target (TGT).
But there’s a better option here, too, for those who would like to play the organic/natural foods theme via a manufacturer of food products rather than a retailer, and that’s Hain Celestial Group (HAIN), maker of Terra Chips among myriad other comestibles. While still lofty, its PE ratio is still about half that of Annie’s, and its product line is more extensive and better established in its target market. Hain recently agreed to acquire a collection of British grocery brands that will help fuel its expansion in that new market.
Hain’s stock, too, has outperformed the S&P this year, by a far greater extent than has Annie’s – and it, too, is currently trading at well below its highs.
There is a lot of growth baked into these stocks, but it’s hard to quarrel with demographics.
Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.
Filed under: Company Analysis