The Associated Press reported that Chiquita Brands (NYSE:CQB) is innovating with the hope to mimic Starbucks' (NASDAQ:SBUX) success in coffee. Chiquita wants to take the centuries-old banana, improve it, and sell it for a premium price.

The first generation of this strategy is already growing in the Philippines and marketed in Japan. The new highland banana is super-sweet. It is so popular in Japan that it commands a 100% premium and is quickly building market share.

Does "super-sweet" ring a bell? Motley Fool Hidden Gems recommendation Fresh Del Monte Produce (NYSE:FDP) rose from an October 2000 low of $3.38 to a 2003 high of $29 on the success of its super-sweet pineapples. Del Monte, with less annual revenue, has a market capitalization 70% higher than Chiquita's. Del Monte proves that innovation, even in fresh food, can generate obese profits and sharply higher stock prices.

Quick look at Chiquita
Chiquita, at a market capitalization of $831 million, is a well-known brand name at a micro-cap price. It trades at a below-market 9 times trailing earnings and an estimated 7 times 2005 earnings. That's cheap.

Last quarter, bananas were 53% of Chiquita's total sales. Bananas pay the bills, and then some. Banana operating margins at 6.6% (down from 9.3% a year ago) were still enough to fund innovation, digest a European acquisition, and produce net income of $20 million.

Expanding operating margins will have an explosive impact on earnings. In a world where many stocks are priced at multiples of sales, Chiquita's enterprise value is 37% of revenue. That is not the valuation you would expect for a company with the potential for explosive profitable growth.

Short history of bananas
In the 1960s, the Gros Michel was the best-selling banana. A sterile, seedless banana, it was devastated by disease and replaced by the Cavendish -- the king of sweet bananas exported today. The Cavendish is also a sterile, seedless mutant (that sounds yummy, doesn't it?). There is no natural diversity at work here! Because of that, diseases could devastate it, too.

Don't worry -- your breakfast of Kellogg's (NYSE:K) Corn Flakes with fresh banana slices is not in jeopardy. There are more than 400 varieties of bananas, and researchers are working on new varieties that are disease-resistant.

Bananas have a short growing cycle, thrive in tropical locations, and grow in good soil or bad. They are tailor-made for experimentation, and Chiquita has promised not to take the genetic route that has gotten Monsanto (NYSE:MON) embroiled in controversy.

The new bananas
So, what could you expect to see from Chiquita? The company has signed an exclusive multiyear agreement with FHIA, a Honduras-based agricultural research organization, to provide Chiquita with the R&D it needs for new banana varieties.

Although the company has not disclosed what new flavors will be developed, it is logical to assume apple, vanilla, strawberry, and a "hint of lemon" will be among the choices. Why? These flavors already occur naturally in some banana varieties.

A surprise might be the color of the new bananas. Nature already provides them in green/white (variegated), bluish/green, orange, yellow/green, green/red, and hot pink -- to name the more colorful. One word of caution, though. The hot-pink variety, besides being inedible, has seeds hard enough to break a tooth.

There is speculation that an "environmentally friendly" banana may be offered. Much of today's research is aimed at reducing the amount of chemicals needed to eradicate disease. New disease-resistant varieties might provide a premium-priced product for natural (organic) food vendors such as former Motley Fool Stock Advisor recommendation Whole Foods Market (NASDAQ:WFMI).

What the company has said is that it will start testing "a few" new varieties with consumers this year.

What's ahead?
With the success of the new sweet banana in Japan, and sweet pineapples around the world, consumers have shown a willingness to embrace new food varieties and pay a premium price.

The tough question to answer is whether consumers will pay Starbucks-like prices for a banana.

Bananas are a high-turnover, high-profit item that drives the supermarket produce section profitability. Supermarkets should welcome premium-priced bananas to see whether they can find another way to supercharge earnings. Chiquita has a highly recognized and respected name. If anyone is going to sell a premium banana, they are.

Big profits may come from unexpected places. As Rich Smith recently noted, the European Union (EU) is going from a quota system to a tariff system. The net result is expected to be little or no change in who sells how many bananas in the EU. But what happens when you substitute today's bananas for those with premium prices? You get oversized profits with no change in volume.

Wal-Mart (NYSE:WMT) and its large supermarket peers are looking for a few vendors that can deliver a quality, branded product nationally. Chiquita is currently testing fresh-cut fruit. A successful launch of a new branded banana could enhance the company's already strong brand image and provide the coattails needed to get supermarkets to test its high-margin, fresh-cut fruit.

Final thoughts
Investors are constantly looking for stocks flying under the radar that are profitable, selling at reasonable multiples to earnings and ready to rock to the upside. What you usually do not see is a value stock with a catalyst -- like a Starbucks-priced banana -- that might ignite explosive earnings growth.

Any sizeable shipments of premium-priced bananas will not happen in 2005 or 2006. Although bananas grow quickly, consumers need to be tested, plantations must be cultivated, and market introductions need to be planned.

What makes Chiquita unique is that it is selling for such a low price to earnings. While investors wait to see whether bananas can become a blowout financial success, they can also monitor the company efforts to maximize profits by using new integrated business systems and building a more diversified product line.

Oh, and then there is the company's R&D efforts with melons. Disease is wiping out some of Florida's watermelon crop this season. Chiquita might have innovations in this area as well, but that is a much smaller market than bananas and a story for another day.

Should the arrival of new fruit products to market make investors' mouths water? Is the pace of breeding new strains of fruit cause for concern? Discuss Chiquita Brands or Organic Living on the Motley Fool discussion boards.

Contributor W.D. Crotty does not own stock in any of the companies mentioned. The Motley Fool has a disclosure policy .