This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Keep Your Cheese Out of Annie's

Stocks in this article: BNNY HAIN MDLZ KRFT WFM TFM GIS NSRGY CPB

NEW YORK ( TheStreet) -- Investors who were willing to pay north of $46 per share for Annie's (BNNY) stock weren't pleased when I talked down the company's prospects back in December.

Although Annie's had strung together some solid earnings results, I never bought the notion that the stock commanded the premium investors were willing to pay. Annie's (then) traded at a price-to-earnings ratio of 61, which was (then) twice the earnings multiple of Hain Celestial (HAIN). If that weren't bad enough, Annie's valuation also tripled shares of Mondelez (MDLZ). And these are two top-notch performers in packaged foods.

[Read: Greenberg: Coke's Green Mountain Stake Not a Day Too Soon]

This suggested the Street was expecting strong growth from a hot packaged food sector that has been anything but appetizing. Although the company does focus more on natural and organic foods (a growing segment), management had developed ambitions to compete more with the likes of Kraft (KRFT). In other words, Annie's wanted to broaden its scope. This made perfect sense, and investors were correct to applaud the idea.

The Street, however, didn't factor in the cost this conversion would incur on near-term margins. All of this would take place while the company relies on a higher-earning demographic for its business. Annie's success was too heavily predicated on a robust economy. All told, at a P/E of 61, there were too many risks for my taste.

Three months later, these shares are down 13%. After having correctly called the top, investors want to know if it's time to take a nibble. While management has done a stellar job selling investors on the long-term sustainability of the natural and organic foods market, Annie's is still a relatively young company that has less than two years as a public issue.

That the company's stock has soared well over 140% during that span is remarkable. I do believe, however, that this has been another case of "theme-based investing." And we've seen this same reaction in the tech sector as well where, for instance, all cloud-related stocks traded at sky-high valuation. This is because everybody believed the cloud and "Big Data" was the next big thing. That buzz has somewhat fizzled.

Similarly, I believe Annie's has seen its stock ride the wave of Whole Foods (WFM) and Fresh Market (TFM), two companies that created the stir around healthy lifestyles, particularly any product preceded by the word "organic."

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs