Lifeway Foods Gives Wall Street a Healthy Glow

I wouldn't have guessed it, but it looks like Wall Street has finally called one right.

As you may recall, last month we spotlighted several of the stocks that institutional investors had been buying most actively -- Lifeway Foods (Nasdaq: LWAY  ) among them. Fast-forward a few weeks, and the little kefir maker has just reported earnings that proved Wall Street right.

In the first quarter of 2011, Lifeway reported a surprising 19% jump in sales. That's short of the 25% to 30% organic growth rate that management has been promising, but still pretty spry given our current economy. It's also heartening to see healthier free cash flow at the company. The first quarter saw Lifeway generate $798,000 in free cash from its business, a 62% jump from last year's levels. Shares are up sharply in response, but is the per-share price hike warranted?

After all, the company could stand some improvement in the profitability department. Despite milk prices being lower this year than last, Lifeway grew net income for the quarter only half as fast as overall sales, ending with $0.12 per diluted share. Also, while generally considered a small-cap "growth stock," and expected to increase sales faster than slow-moving dinosaurs like Coca-Cola (NYSE: KO  ) and PepsiCo (NYSE: PEP  ) , Lifeway actually lost out to those giants. Pepsi posted 27% sales growth last quarter. Coke had a cool 40% gain.

Foolish takeaway: Still love the company. Still hate the stock. Wait for better prices.

Will Lifeway continue to reward Wall Street's optimism? Add it to your watchlist and find out.