Shares of Hain Celestial (Nasdaq: HAIN ) hit a 52-week high on Friday. Let's take a look at how it got there and whether clear skies are still in the forecast.
How it got here
If we've learned anything about Americans increasing emphasis on their health, it's that the best way to make money off health-conscious consumers is through the food in their stomach rather than their loyalty to a gym.
Weight Watchers International (NYSE: WTW ) was recently crushed after marketing expenses drove down its margins and ate into its bottom-line profit. Understanding that health-conscious consumers have very short attention spans and little loyalty goes a long way to making a healthy profit when selecting a healthy solutions stock.
Hain Celestial, simply put, is benefiting from a trend toward healthier organic food options. In its latest quarterly report, Hain, the name behind dozens of organic and natural food products found in grocery stores, reported a 53.6% jump in adjusted net income, a 31.5% spike in sales, and raised its fiscal 2012 EPS forecast. This is a common theme for the entire organic and healthier choice food sector. Whole Foods Market (NYSE: WFM ) recently reported a 14% rise in sales as customer traffic continues to climb at its stores. Starbucks (Nasdaq: SBUX ) , which has adapted a considerably healthier approach to its menu items, continues to drive margin expansion with its food offerings. Even the recently public Annie's (NYSE: BNNY ) joined in on the fun with an 89% one-day pop when it debuted on the NYSE in late March.
How it stacks up
Let's see how Hain Celestial stacks up next to its peers.
HAIN data by YCharts.
I purposely left Annie's out of the chart above to exemplify just how broad the rally has been for companies offering healthier food options (be it suppliers, grocery stories, or restaurants).
5-Year Revenue CAGR
|Whole Foods Market
Source: Morningstar, Yahoo! Finance. *Annie's does not have five-year revenue history available. CAGR = compound annual growth rate.
Despite being strong growth stocks over the past five years, these four names are far from compelling value plays. That doesn't mean they couldn't head higher, but these metrics need to be pulled like string cheese in order to find compelling value in these four names.
The recently debuted Annie's has the most to prove, trading in excess of 50 times cash flow and forward earnings. Whole Foods Market appears to be the next most expensive based on forward earnings, but it's also been the most consistent growth stock, with sales increases every year over the past decade. Bet against a company with some of America's happiest employees? I think not! Starbucks seems lofty at 28 times cash flow and eight times book, but its expansion plans into China and the constant evolution of its menu continues to drive growth. Surprisingly, even after its huge run, Hain Celestial looks like the "value stock" of the group if my arm were twisted and I was forced to pick one.
Now for the real question: What's next for Hain Celestial? That question is really going to depend on whether the trend to healthier eating continues (and based on the obesity rate in America, I see that as almost a given) and if Hain Celestial can provide a good mix of product in organic and natural food stores.
Our very own CAPS community gives the company a four-star rating (out of five), with an overwhelming 95.7% of members expecting it to outperform. Although I have yet to have enough conviction to make a CAPScall on Hain Celestial in either direction, I am greatly leaning toward making an outperform call on the company -- assuming I get a pullback.
Hain Celestial is one of the five companies I pointed out on Earth Day as a great alternative way to get green stocks in your portfolio. The company not only produces organic and natural foods that have positive benefits on people's health, but it's also stepping up and updating its manufacturing facilities to make them energy efficient and maximize its recycling capability. In addition, the company is also employing only biodegradable packaging for its food supplies. With a five-year projected growth rate of nearly 16% and plenty of consumers willing to change their eating habits to look and feel better, I'm simply waiting for a pullback to enter my optimistic CAPScall of outperform on Hain Celestial.
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