Go Nuts for John B. Sanfilippo & Son (JBSS)
This week’s hot stock had an outstanding 2014 and was up 53% over the course of the year, but is undervalued even at its new, higher price. As a main producer of one of the most popular snack and health foods in the country, this company has plenty of room to grow. Producing a common snack food that can be consumed alone and as the base of countless other products creates ample opportunity for profit growth. This week’s hot stock is nut producer John B. Sanfilippo & Son (JBSS).
John B. Sanfilippo has grown after tax profit (NOPAT) by 21% compounded annually since 2008. The company currently has an 8% return on invested capital (ROIC) which is much better than the 3% ROIC achieved in 2008, and fairly high for a commodity business. John B. Sanfilippo has taken advantage of the growing market for nuts with its wide range of not only nuts, but consumption-ready snack mixes like trail mixes and seasoned nuts. At the end of 4Q14, the company reported revenues were up 12% from the previous year. Much of this growth occurred in the consumer segment as well.
At the moment the market is undervaluing JBSS and the stock earns our Attractive rating as a result. As a small cap stock, John B. Sanfilippo doesn’t receive the coverage that some of the larger companies do, but this can create excellent value investing opportunities. At its current price of ~$37/share, John B. Sanfilippo has a price to economic book value (PEBV) ratio of 1.1 which implies that the market expects John B. Sanfilippo to grow NOPAT by only 10% over the remaining life of the company.
If the company can grow NOPAT by just 6% compounded annually for the next 10 years, the stock is worth $51/share –– a 37% upside. If John B Sanfilippo can continue at its current clip of 12% revenue growth, the upside could be even greater.
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.
Photo credit: Jeremy Weate (Flickr)