Barchart.com data shows 21 mid-cap stocks hit 52-week highs in midday Wednesday trading.
On Wednesday, I’ll cover a stock on the NYSE or Nasdaq, hitting 52-week highs or lows. Mid-caps happened to capture my fancy while looking for a good candidate. Of the 21, Vital Farms (VITL) jumps out at me for various reasons, which I’ll get into below.
The Austin-based food company hit its 52nd 52-week high ($44.23) of the past year. Up 202% over the past 52 weeks, its momentum looks set to carry on into the second half of 2024.
Here’s why.
Its Share Price Finally Has Delivered for IPO Shareholders
If you're new to the company, Vital Farms went public on July 30, 2020, selling 9.3 million shares of its stock at $22. On the first day of trading, its shares closed up 60% to $35.
If you were lucky to get IPO shares of the Texas pasture-raised egg producer and then sold near its $35 first-day high, you’re very fortunate. Within a week of its IPO, its shares peaked at $43.30, reaching a low below $9 in June 2022.
Its shares traded below its $22 IPO price for nearly 36 months, from May 2021 through March 2024. On March 18, it closed above $22 for the first time in a long while. VITL stock has doubled in the 11 weeks since.
What the heck is going on? Is this an indicator like Roaring Kitty that the markets have gone unhinged? Or, is there something to the move? It's probably a little of both, but let’s consider why it’s getting more love from investors.
It Can’t Be an Egg Thing
As I said earlier, its shares have risen 202% over the past 52 weeks, compared to a 25% gain for Cal-Maine Foods (CALM) over the same period.
Investor’s Business Daily published an article today highlighting some reasons for Vital Farms’ success. Despite participating in an industry with volatile selling prices that ebb and flow based on supply-demand dynamics, Vital’s accelerated sales and earnings in the past year.
“‘Especially compared with a typical consumer packaged food company, profits swing wildly year to year,’ said Morningstar analyst Kristoffer Inton. He does not see that as a bad thing for investors,” Investor’s Business Daily reported.
“‘Those swings downward can also create opportunity,’ Inton said. He added a savvy investor would be on the lookout for these dislocations and anticipate ‘normalizing action’ because headwinds don't stick around forever.”
But if the problem were solely a lack of supply pushing egg prices higher, Cal-Maine’s stock would be keeping pace.
One possibility is that Vital deals in the specialty egg category, where prices are generally higher indefinitely as a rule. Think of it as the LVMH (LVMUY) of eggs.
Consumers Like Premium Eggs
According to Stifel analyst Matthew Smith, over half of the 131.4 million American households buy premium eggs through 32,000 retailers nationwide.
Its penetration rate (the percentage of the market bupany’s products) is 33% of its total addressable market of 34 million households. It sells to about 75% of the retailers available to sell to.
Even though it’s in Whole Foods, Kroger, Target, and many other large grocery store chains, it has yet to get its eggs into 25% of the retailers. A third of 34 million is 11.22 million households it’s selling to already. Based on 75%, that’s about 150,000 households per percentage point.
If it were to reach the other 25% of retailers, it would generate a potential additional 3.74 million households, providing significant upside without selling any more eggs and other products, such as butter, to existing customers.
“Vital Farms presents a compelling and robust growth opportunity for investors through its participation in the fasreachedcialty egg category,” Investor’s Business Daily reported Smith’s comments.
Analysts expect its revenue to grow 50% this year and 21% in 2025. On the bottom line, it earned $0.50 a share in 2023. Analysts expect $0.72 (44% growth) in 2024 and $1.07 (49% growth) in 2025.
That’s tasty growth.
What About the Valuation?
I'll grant you that its shares aren’t cheap, but it occupies a piece of the egg and dairy market that appears to be more inflation-resistant than lower-priced competitors.
At a current share price of $44.46, Vital trades at nearly 42x its 2025 projected earnings, compared to 33x 2025 earnings for Cal-Maine. Given Vital’s positioning in premium-priced products, that seems like growth at a reasonable price.
The company aims to reach $1 billion in annual revenue by 2027 and achieve a 12-14% adjusted EBITDA margin.
On the supply side, it will achieve this by adding 250 family farms to the over 300 that supply the company today while opening new processing and packing facilities. On the demand side, it plans to reach this goal by adding 20 million new households that buy its products through 8,000 more stores while increasing the number of items it has on retailers’ shelves. It’s a trifecta for growth.
With low options volume, you might not be able to make a trade, but I find the Jan. 16/2026 $55 call attractive. The ask price as I write this is $10.40, a down payment of 19%. Sure, it’s high, but you’ve got more than a year and a half to see the bet play out.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
