What happened
Shares of global food company SunOpta (STKL +0.00%) were going down on Thursday after it reported results for the third quarter of 2020. The company's revenue and profit were slightly ahead of expectations, and management was upbeat about its performance thus far in 2020. That said, the stock was trading near two-year highs, likely leading some investors to take some gains off the table. As of 12:45 p.m. EDT today, SunOpta stock was down 9%.
So what
In the third quarter, revenue grew 6% year over year to $315 million. The biggest gain came from its global ingredients segment, with 8.8% growth. But its higher-margin plant-based foods and beverages segment also contributed to the gains with 7.8% growth. And sales growth with higher-margin products are partly why the company grew profits ahead of expectations. Management noted that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled to $22.8 million.
Image source: Getty Images.
While these are good results, perhaps it just wasn't enough to satisfy investors. SunOpta stock is still up over 400% from March lows, and many likely bought shares as a turnaround play. These kind of investors don't typically hang around for the long term and perhaps feel the stock has rebounded enough to sell now.
Now what
In SunOpta's press release, CEO Joe Ennen said, "We believe it is safe to say that SunOpta is no longer a turnaround story, we are quite simply a sustainable growth story." Here's why I'm not sure I completely buy that statement. According to the U.S. Census Bureau, grocery retail sales were up 11.9% in the first nine months of 2020. By comparison, SunOpta's revenue is only up 7.6% in the first three quarters of this year.
In other words, it seems that much of the company's growth story right now is attributable to shifting consumer habits from the coronavirus pandemic; much of its revenue comes from grocery retail. Long term, I expect the balance between food-service and grocery sales to normalize, and SunOpta's current growth could evaporate as a result. The company does have some interesting growth initiatives like its plant-based milk products. But I would wait a little longer before calling this a growth stock.
