Shares of frozen-potato company Lamb Weston (LW +1.79%) tanked on Wednesday after the company reported financial results for its fiscal fourth quarter of 2024 and warned investors regarding its fiscal 2025. As of 10:30 a.m. EDT, Lamb Weston stock was down a painful 26%.
What's going wrong for Lamb Weston?
Lamb Weston is one of the largest french fry companies in the world, serving restaurant chains and stocking grocery stores worldwide. The company's net sales were up 21% year over year during fiscal 2024, but 99% of this growth was from acquisitions. By contrast, consumer-demand trends aren't great and point to a tougher fiscal 2025 than what investors had hoped.
NYSE: LW
Key Data Points
Lamb Weston essentially directs blame toward restaurant companies that have raised menu prices to the point of pushing consumers away. In fiscal 2025, management expects 5% top-line growth, at best. And its guidance calls for a drop in net profits.
Perhaps most concerning on this point is the wide guidance range that Lamb Weston's management gave for profitability. Management says it expects full-year net income of $630 million to $705 million. This indicates that management is fairly uncertain what the coming year holds. And investors dislike uncertainty.
When life gives you potatoes...
In a worst-case scenario from management, Lamb Weston stock trades at less than 13 times its forward earnings, considering its market capitalization is about $8 billion now. That's cheaper than it normally is, which could attract value investors.
It's possible the market overreacted today with Lamb Weston stock. French fries aren't going anywhere long term, and the stock is cheap enough to expect it to modestly bounce back in the near term. However, value investors will need to remember that long-term growth is important for stocks that outperform the S&P 500.
Therefore, it's important to not only look for what's cheap but also for what can grow. And it's fair to wonder how much growth opportunity Lamb Weston has.
