Lifeway Toasts Itself

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As investors' hearts turned to thoughts of turkey, pumpkin pie, and gravy last week, the healthy-beverages folk at Lifeway Foods (Nasdaq: LWAY) were hankering for something a little more probiotic: their own shares.

For the second time this year, Lifeway took advantage of a stock swoon to sweep in and scoop up some cheap shares -- 100,000, to be exact. However, the last time Lifeway announced such a plan, the stock was selling for nearly $11 a share -- nearly twice the "price that enticed" last week. Will this latest initiative reward investors any better than the last one? Let's find out. As usual in this series, we pose the question in two parts:

Can it pay?
Absolutely. Lifeway has a good $6.2 million in the bank, and nearly $1.7 million net of debt. A mere 100,000-share buyback program (just 0.6% of shares outstanding) should run Lifeway no more than $700,000 -- corporate pocket change.

Plus, as I mentioned in "What Are the Lifeway Analysts Thinking?" last month, Lifeway's on track to generate more than $2 million in free cash flow this year, and if milk prices keep falling, perhaps even more next year. So Lifeway can afford to run this buyback several times over.

Should it pay?
That's a tougher question. Even after seeing its share price slide over 30% in the past month, by almost any metric you name, Lifeway still looks absurdly overpriced today: Its enterprise value-to-EBITDA is 19. The P/E sits at 42, and the price-to-free cash flow ratio tops 55.

But let's give Lifeway the benefit of the doubt, and assume there's some method to this apparently mad buyback plan. How does Lifeway stack up against its dairy-drinking peers?

Company	P/S	LTM Profit Margin	Projected Growth Rate
Lifeway	2.2	6.4%	19%
Hershey (NYSE: HSY)	1.6	5.6%	7%
General Mills (NYSE: GIS)	1.5	9.1%	9.5%
Kraft (NYSE: KFT)	0.9	7.8%	9%
Dean Foods (NYSE: DF)	0.2	1.2%	11%

Source: Yahoo! Finance and Capital IQ.

Among food companies whose fortunes are tied in part to the price of milk, Lifeway carries the highest price-to-sales ratio by far, but only a middle-of-the-pack profit margin on its sales. What separates Lifeway from its peers is its growth rate, which has more in common with trendy drinkery Hansen Natural (Nasdaq: HANS) than with the staider companies shown above. Why, Hansen even has a similar P/S to Lifeway: 2.7.

Foolish takeaway
There the similarity ends, however. On closer examination, we see that Hansen earns a profit margin nearly three times as robust as Lifeway's. I'm forced to conclude that while Lifeway's stock has gotten a whole lot more attractive over the past month, it's still no bargain. My advice: Wait for even better prices.

Read more about Lifeway in:

• Dairy Drought 
• Lifeway Relives History 
• Fool on Call: Lifeway's Corporate Cotillion