Trading at $21.32 on May 3, 2002

Mom, it seems that whenever you're not at work or out gallivanting about town, you're in the kitchen. Since you're such a great cook and are familiar with all kinds of foods, I thought I'd present you with a food stock this year. Meet Smithfield Foods(NYSE: SFD).

Many people have never heard of this company, or if they have, they just associate it with a ham. They don't realize that it's actually a huge food company -- the largest hog producer and pork processor in the world, producing 6 billion pounds of high-quality fresh pork and processed meats. I was one of those ignorant people, myself, until I read about Smithfield Foods in the Fool's Industry Focus 2002 report, where my colleague Jeff Fischer reviewed the company.

Since 1975, Smithfield Foods stock has returned 28% per year, on average, which is mighty impressive, giving even Warren Buffett a run for his money. (Jeff quoted the 2001 annual report that exclaimed, "This pig can fly!") The company has grown quickly in large part due to acquisitions, gobbling up companies frequently, but letting each operate somewhat independently as they contribute to the company's overall top and bottom lines.

One good way to evaluate a company is to compare it with others in its industry. The more foolproof (pun intended) way to do this is manually, but to get a general impression you can do what I did -- look up some canned numbers, such as those available at the Fool's Quotes & Data area and MSN's Money area. Here's how Smithfield stacks up to its industry:

    Smithfield    Meat Industry
Sales growth (5-yr. avg.)       12.3%           -5.36%
EPS growth (5-yr. avg.)         30.13            7.67
Gross margin                    16.3            17.3
Net profit margin                3.3             2.7
Return on equity (5-yr. avg.)   15.5            11.4
Return on assets (5-yr. avg.)    4.8             4.6
Return on capital (5-yr. avg.)   7.2             6.5
Revenue/employee               $203,000       $115,000
Income/employee                 $7,000          $3,000
Inventory turnover               7.6              7.1
Asset turnover                   2.0              1.6

On every measure above except gross margin, Smithfield is ahead of its competition.

The stock's price-to-earnings ratio (P/E) is 11.80 based on the current year's earnings per share (EPS) and 10.38 on next year's estimated EPS. Over the previous 8 years, its P/E has averaged about 16, reflecting a current price that's considerably lower. If Smithfield Foods were to reestablish a P/E of 16, its current price would be around $30 per share, instead of the current $22 (as of the time of this writing). Next year, it would trade near $34 -- again, with a P/E of 16.

If you're already on the phone with your broker, hang up, will you? I'm not done yet. Let's take a closer look at a few things. I looked up the company's most recent earnings report, for its third quarter, ended in January 2002. Third-quarter revenues grew a very strong 23% over year-earlier levels, but net income grew only 1% in that period. That's mainly due to a large gain in 2001 on the sale of some stock.

Inventory growth for the period was only 13%, which is good, as we'd want that to not exceed revenue growth. But accounts receivable growth of 31% presents a red flag. It outpaces revenue growth, suggesting that the company's customers may be having trouble paying up -- or Smithfield might be extending more generous terms.

Also worrisome is long-term debt, which advanced some 31%, to $1.3 billion, considerably more than the company's cash hoard of $96 million. Can the company ever pay this off? Well, its cash from operations grew solidly, up 24% in the third quarter over year-ago levels, and cash itself grew 70%.

So here you go, Mom -- a mixed bag of pork. Take some time to read through the company's website and financial statements and see what you think. If Smithfield can get its debt under control, perhaps it will gain more attention and a higher price. Keep an eye on the company, as it might be able to bring home some bacon for you one day.

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Selena Maranjian is smarter than a speeding bullet and faster than a tall building. She owns shares in Intel, Microsoft, and Cisco Systems. To see Selena's complete stock holdings, view her profile. The Motley Fool is Fools writing for Fools

A Stock for Mom represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts.