Anyone who has stepped into a Whole Foods store within the
past few years knows that the hunger for organic and natural
foods is generating longer lines at checkout counters as the
quest for safe foods has gone mainstream. It also is producing
fatter bottom lines on the part of companies benefitting from the
boom - and Whole Foods Market (
WFM
), while it may be the most obvious candidate, isn't the only one
available to play this theme.
TFM Net Income TTM
data by
YCharts
Consider The Fresh Market (
TFM
), for instance, the growth in whose profits has greatly
outstripped the increase in its operating expenses over the last
year. It has kept its costs lower by having fewer full-time
employees, and not opening as many of its stores in premium
locations, betting (correctly) that its target customers will go
out of their way to patronize their stores. Unsurprisingly, its
EBITDA margins, on a trailing 12-month basis, exceed those of
Whole Foods.
Valuations for both Fresh Market and Whole Foods remain rich,
unsurprisingly, based on
PE ratio
. Both command a healthy premium to the broad market, reflecting
the demographics that have fueled demand growth and the fact that
these and other 21st-century purveyors of healthy food have
created stores that offer polished design and appetizing
displays.
TFM PE Ratio TTM
data by
YCharts
The newest arrival on the scene is Annie's (
BNNY
), whose signature rabbit-shaped pasta is organic - and explains
the company's choice of stock symbol when it went public earlier
this year. Since that time, the company's share price has come
down from its peak, but it still is outperforming the S&P
500. Its products are found on store shelves not only at
retailers like Whole Foods, but also at 'mainstream' retailers
like Target (
TGT
).
But there's a better option here, too, for those who would
like to play the organic/natural foods theme via a manufacturer
of food products rather than a retailer, and that's Hain
Celestial Group (
HAIN
), maker of Terra Chips among myriad other comestibles. While
still lofty, its
PE ratio
is still about half that of Annie's, and its product line is more
extensive and better established in its target market. Hain
recently agreed to acquire a collection of British grocery brands
that will help fuel its expansion in that new market.
BNNY
data by
YCharts
Hain's stock, too, has outperformed the S&P this year, by
a far greater extent than has Annie's - and it, too, is currently
trading at well below its highs.
There is a lot of growth baked into these stocks, but it's
hard to quarrel with demographics.
Suzanne McGee is a contributing editor at YCharts, which
includes the just-released
YCharts Pro Platinum
for professional investors.