Smart Balance Caters to Affluent Health-Conscious Consumers
Meryl is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Smart investors seek opportunities in industries and individual businesses about to take off in the marketplace. The market for health foods and natural personal care items is expanding, and one small company competing alongside larger fish is ready to take advantage of the opening.
Health food sales, however, faltered in recent years as recession-weary, belt-tightening consumers were reluctant to pay additional pennies for organic and health food products. During tough economic times many companies retreat and contract, while others look ahead and plan for better times. Smart Balance (NASDAQ: BDBD) realized the long-term outlook for their products were positive, and planned accordingly. Smart Balance is poised for growth as discretionary income allows Americans to pay more for healthier food alternatives.
Smart Balance successfully attracts and retains affluent, health-conscious consumers. Products include a variety of butters and spreads, fat free milk products, peanut butter, oils, mayonnaise, popcorn and gluten-free foods.
SMBL not only survived but managed to thrive in recession, penny-pinching times. One aspect of the company’s growth plan has been a search for acquisitions with brands that fit into current product lines. Smart Balance bought Canadian-based Importations DE-RO-MA in 2011 and Udi’s of Denver, Colorado, in 2012. Both companies specialize in gluten-free foods.
SMBL stock collapsed with the market during the financial crisis, hitting a low of 3.56 on October 29, 2010. SMBL has steadily, slowly, if somewhat erratically moved up since, closing on September 12th at 11.22.
Smart Balance posted 2011 revenues of $274.34 million, a 13.38% increase over 2010 revenues of $241.96 million. One of Smart Balance’s largest competitors is ConAgra (NYSE: CAG). CAG brands appealing to health food advocates include Healthy Choice and Egg Beaters. CAG reported 2012 sales/revenues of $13.27 billion.
Another Smart Balance competitor with several natural food brands, Hain Celestial (NASDAQ: HAIN), reported $1.38 billion in sales/revenues for 2012. HAIN brand names include Arrowhead Mills, Healthy Valley, and Earth’s Best.
Smart Balance runs a tight ship. The revenue per employee ratio is 1.35 versus .37 for Hain and .51 for CAG. The income per employee ratio is .05. Hain Celestial’s income per employee is .03 and Con Agra’s is .02.
Smart Balance is prepared to take advantage of an improving economy, catering to health-conscious consumers seeking good tasting, healthy food choices. Smart Balance products are sold in most mainstream supermarkets throughout the country. The Earth Balance product line is sold primarily in natural food stores.
The company is probably a future take over target by larger corporations seeking immediate entry into the health food market, or competitors pursuing their own expansion, looking for foodstuffs compatible with their existing product line.
The stock is pricey, however, with a 12 month trailing P/E of an eye-popping 96.37. In comparison Hain Celestial’s 12 month trailing P/E is 32.93. Con Agra’s P/E is 22.89.
Smart Balance is a well-managed company offering products to a growing niche market. The stock bears watching, purchasing a few shares when the price falls, to some extent, once again. SMBL does not pay a dividend.
Smart Balance is a small company, and investing in small firms is riskier than purchasing large cap corporations with long track records. But investing is all about taking risks and, hopefully, reaping the rewards. A little luck helps too. Identifying market trends and finding companies able to effectively take advantage of the opportunities is key to success. John Maynard Keynes stated this investment principle well: Successful investing is anticipating the anticipations of others.
I think Smart Balance is a good example of a small company that knows their customers and caters to a particular market segment. Time will tell whether or not management can continue to grow their company and shareholder value.
mercyn has no positions in the stocks mentioned above. The Motley Fool owns shares of The Hain Celestial Group. Motley Fool newsletter services recommend The Hain Celestial Group. 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.If you have questions about this post or the Fool’s blog network, click here for information.