Why Diamond Foods, Inc. Stock Jumped 10% in June

DMND Chart

What: Shares of Diamond Foods gained 10% in June, following a strong earnings report at the beginning of the month.

Source: DMND data by YCharts .

So what: The maker of nuts and snack brands such as Kettle Chips released a June 4th earnings report that led to a 7% jump in its share price as the company delivered a huge earnings beat, posting a per-share profit of $0.23 against estimates of $0.15. It was the fourth consecutive time the company had topped bottom-line estimates.

Sales actually fell in the quarter, dipping 2.5% to $186.1 million, but management was able to more than double adjusted earnings as gross margin improved nearly five percentage points to 28.5%. Management explained the decline in sales as strategic as the company exited lower-margin SKUs. The company also raised its full-year guidance slightly following the report.

Now what: For years, Diamond Foods has been a radioactive stock, following an accounting scandal that led to the resignation of its CEO and CFO, several financial restatements, and the collapse of its deal to buy Pringles from Procter & Gamble . The stock also plummeted more than 80% but has recovered since then, more than doubling from its bottom.

Its business, snacks and nuts, is unlikely to see dramatic growth anytime soon, and with a heavy debt burden, the company is unlikely to pursue any acquisitions, but management has shown that it can boost profits by rationalizing the product portfolio and making other smart decisions. On a valuation basis, a further increase in share price may be hard to justify unless the company can continue to soar past earnings estimates. Shares are already priced near 30 times this year's projected earnings. Diamond should be able to push profit margins higher, lifting earnings, but the potential in growing that way is limited. Eventually, the company will need to find a way to eventually boost sales growth in order for the stock to move significantly higher.

This $19 trillion industry could destroy the Internet

One bleeding-edge technology is about to put the World Wide Web to bed. And if you act quickly, you could be among the savvy investors who enjoy the profits from this stunning change. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.

The article Why Diamond Foods, Inc. Stock Jumped 10% in June originally appeared on

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More