There was a time when the low-carbohydrate Atkins and South Beach diets were sending tsunamis through the financial world. Riding swelling demand up was MGP Ingredients
MGP hit the big time with FiberStar 70, a wheat-based resistant starch that enabled food manufacturers to lower the carbohydrate levels of their products. It was followed by FiberStar 80, which added a potato-based variety to the product line through a licensing agreement with Penford
From a March 2003 closing low of $3.08, the stock crested at $22.87 in May 2004 before falling 23% today to $7.54 a share. In surfing terms, the last six months have been over the falls and a wipeout.
Pounding the stock into the sand today was a company press release that lowered guidance for fiscal year 2005 (which ends June 30, 2005) from $1.03-$1.08 a share to $0.40 to $0.50 a share. Bummer, dude! Making matters worse is that the revised guidance does not account for any previous purchase agreements with Penford.
Those looking for a wave of future good news should heed the company's words that "future demand for low-carb products should not be expected to return to the much higher levels experienced during the fourth quarter."
While the low-carb diet craze was a rising tide for protein (that is meat) king Tyson Foods
While companies such as Cal-Maine used the boom cycle to clean up its balance sheet, MGP has gone from net cash (cash minus debt) of $2.3 million in 2003 to a net debt (debt minus cash) of $24.4 million today. With potential problems still looming from the Penford deal, it is hardly time for investors to wade into MGP Ingredients -- especially at 19 times earnings (the low end of guidance).
Investors looking for food investments should consider fallen micro-caps with strong balance sheets that are selling at reasonable forward earnings levels. They should also consider giants such as General Mills
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned and, if you have not guessed, spent a lot of time enjoying the surf while living in Southern California.