Going Green May Earn You Green
Denise is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Having a baby changed a lot of things. One of them is my shopping list. Before baby, I never would have considered buying the more expensive organic products. Now, I buy them without question. This led me to research the companies that make organic baby foods, toiletries and other products. It turns out that I am not the only consumer making these choices. This could open a door for new investment opportunities.
My research began with Plum Organics. Plum Organics is a provider of organic, earth-friendly food for infants to school-aged children. It started in 2004 and has only 50 employees, but was named one of the fastest growing private companies by Inc. Magazine in 2012. Though it is not a publicly traded company, its success can be indicative of an overall trend towards successful organic and all-natural companies.
It would be odd to discuss the topic of organic and all-natural foods without mentioning Whole Foods. Whole Foods Markets (NASDAQ: WFM) is arguably one of the most visible organic brands. According to their website, they started as one store and nineteen employees in Austin, Texas and now have more than 340 stores in North America and the United Kingdom. Five years ago, their stock was trading at just under $5 and is now trading at about $55. Though the company sites mergers and acquisitions as part of its success, it also points to the growth of the organics industry. To quote the Whole Foods site, “organic products have grown on average more than twenty percent per year over the last seven to ten years, making it the fastest growing segment of agriculture.” Their revenue growth and profit margins show that they have benefited from this growth.
Another company to keep an eye on is The Hain Celestial Group (NASDAQ: HAIN), a company formed in 2000 by the merger of The Hain Food Group and Celestial Seasonings. The Hain Celestial Group is a natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in many all natural food categories with well-known brands that include Earth’s Best, Arrowhead Mills, Alba Botanica and Queen Helene. In 2009, it was trading at under twenty dollars and is trading at over seventy-four dollars today. It has also shown significant increases in both revenue growth and profit margin and things are looking good for more increases. In May of 2013, Hain announced the acquisition of Ella’s Kitchen Group Limited, another organic baby food provider. Ella’s Kitchen is a successful seven year old company with an international presence. It could well be a boon for The Hain Celestial Group.
A brand that does not follow this trend of having a general increase in stock prices is Annie's (NYSE: BNNY). It is an organic food company that focuses snack foods. However, their focus is somewhat more narrow with many different types of macaroni and cheese, cheese crackers and granola bars. While the stock price has fluctuated, at this point it is trading at approximately the same as it was in the first month after its IPO. However, as you will see below, it has very strong revenue growth.
You can see from the chart below that all three companies have had strong revenue growth since their IPOs. However, you will likely notice that the chart looks very good for Annie's while the increase was far more subtle for Whole Foods. The difference most likely stems from the size of the companies. A company the size of Whole Foods will find it difficult to show sharp increases in revenue.
Perhaps a better indicator of the health and success of Whole Foods is their profit margin in combination with their revenue. The chart shows both a healthy profit margin and a steady increase. If you then compare it to a standard grocery store chain, like Kroger, you will see that its profit margin is excellent in comparison. This is a great sign for Whole Foods, particularly since organic foods have a higher price point and a target audience already willing to pay the higher prices.
In all, it looks like organics are worth a look. Just keep in mind that they do not have a long history and that companies offering a variety of products may fare better. It is also important to check revenue growth and profit margins, while they are historical and do not necessarily predict the future, they are strong indicators of a potential trend. In essence, going green may bring you some green.
Denise Smith has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial and Whole Foods Market. The Motley Fool owns shares of Hain Celestial and Whole Foods Market. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!