Is Annie's Too Hot or Just Right?

NEW YORK ( TheStreet) -- The words "sexy growth" are used to describe virtually every new entrant in tech, but rarely, if ever used to discuss companies in the food industry. But Annie's ( BNNY), which has posted microwave-quick share gains since the company went public in March 2012, is as sexy as any name in the hot packaged food space.

Now, I won't deny that Annie's has posted some incredible numbers. However, I do question the merit of Annie's valuation, which carries P/E of 61. Not only is this twice the earnings multiple of a strong performer, like Hain Celestial (HAIN), but also that Annie's valuation also triples Mondelez (MDLZ). This suggests the Street has placed some huge bets that Annie's will someday reward patient shareholders.

So far, management has done precisely what it needed to do to affirm that faith. But the fact remains this is still a relatively young name in a sluggish industry. And very rarely are companies with these sorts of growth expectations given the necessary time to operate their business. One slip-up and investors get intolerant pretty quickly. So although Annie's growth today might be sexy, I worry that blemishes might appear overnight.

To Annie's credit, though, management continues to work hard to prove people like me wrong. The company made a name for itself selling its natural and organic comfort foods and snacks to popular retailers, like Whole Foods (WFM). Now Annie's wants to broaden its scope and products to compete more with the likes of Kraft (KRFT). Annie's no longer wants the "niche company" label, and I get that. But these ambitions come at a cost to near-term margins and possibly long-term profits.

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