I initially added shares of natural and organic foods company Hain Celestial in November, and the share price has retreated in that short time, even though nothing substantial has changed in its business. (Here is my original in-depth buy thesis.)
What has changed is simply sentiment. A negative Barron's article published in late November questioned the company's ability to keep up excellent growth rates in the organic space, charming factoids aside. (Hain Celestial founder and CEO Irwin Simon sold out of antibiotic-free turkeys at Thanksgiving, illustrating holiday demand for its kind of wares.)
Despite it all, it's interesting to note one investor who is a longtime repeat buyer and has been buying more shares of Hain Celestial recently: Carl Icahn. In Hain Celestial's case, he doesn't appear to be out to agitate like he is at Netflix (NASDAQ:NFLX) and other companies; in the filing related to his Netflix stake, Icahn revealed his belief that the company was undervalued at the time and could be a takeover candidate. Granted, in 2010, Hain Celestial agreed to put two individuals of Icahn's choosing on its board, including his son, Brett Icahn.
Like all companies, Hain Celestial isn't risk-free. Barron's did point out a logical warning that's been a lesson well learned in 2012: Acquisitive companies often have complex financials that can be difficult for investors to unravel, and sometimes the numbers can even be massaged to look better than they are. Hewlett-Packard's (NYSE:HPQ) recent situation concerning its Autonomy acquisition certainly underlined why investors shouldn't always look upon serial acquirers favorably, and Hain Celestial has certainly used acquisitions to grow its organic and natural foods empire.
Still, Hain Celestial looks even cheaper than it did about two months ago, and it's much more reasonably priced than another high-profile organics food maker, Annie's (NYSE: BNNY), which went public in March. Annie's trades at a whopping 33 times forward earnings, despite the fact that it faces many hurdles in growing its brand to include more and more foodstuffs. United Natural Foods (NASDAQ:UNFI), a distributor of natural foods and one of Hain Celestial's major customers, trades at 22 times forward earnings.
Hain Celestial currently trades at 19 times forward earnings, and sports a PEG ratio of 1.36. Its price-to-earnings ratio may look higher than the conventional food purveyors it also competes against, but don't forget that Hain Celestial's role as a pure play in the natural and organic space -- a space many of us believe has heady growth ahead -- could make current multiples look extremely cheap in the future.
Buying Hain Celestial is a bet on the future growth of natural and organic foods in 2013 and beyond; adding shares when a stock drops and nothing's really fundamentally changed for the company is a rational way to end the year.