Stock Investment Lesson Pain

Lifeway Foods: Does The Growth Justify The Frothy Valuation?

Lifeway Foods: Does The Growth Justify The Frothy Valuation?

Lifeway Foods, Inc:

Company Introduction:

Lifeway Foods, Inc. (NASDAQ:LWAY), was founded in 1986 and is headquartered in Morton Grove, Illionis. The Company, together with its subsidiaries, engages in the production and sale of probiotic, cultured, and functional dairy and non-dairy health food products in the United States. The Company’s products include kefir, Basics Plus dairy based immune-supporting dietary supplement beverage, and Kefir Starter for consumers to make their own kefir. Lifeway also manufactures and markets SoyTreat non- dairy soy kefir.

Sector Overview:

The importance of health foods grows in prominence everyday in US. Diet-related diseases, such as diabetes, obesity, heart disease and cancers, are responsible for one-third of premature deaths in the U.S. The U.S Centres for Disease Control estimated that 33% of U.S. children born in 2000 will develop diabetes as a result of their diet.

The food and beverage industry faces increasing pressures to address the effects of their products; the challenge is how to make healthy products, while maintaining healthy profits. In light of these arguments the significance of the health food sector has gradually increased and growing consumer demand bodes well for companies like Lifeway Foods, Inc. (NASDAQ: LWAY).

Stock Performance:

The stock for Life way Foods, Inc., has been trading around  $8.50 as of Jan 14, resulting in total market capitalization of $139.7 million. Over the last year, the stock has traded between a range of $7.90 and $11.10. Over the last three years the stock has registered an average volume of 13,743 shares.  The stock for Life way Foods, Inc.  has been trading at a P/E ratio of 33.49, a P/S ratio of 1.8 and a P/B ratio of 3.6.

Financial Analysis:

For 9MFY12, the Company recorded total consolidated gross sales of $66.8 million, which is up from last year’s gross sales of $58.3 million; that represents a YOY increase of 15%.  This boost was primarily attributed to the increase in sales of the Company’s flagship products as well as the  launch of a new product line in April.

During the same period, gross profits were recorded at $22.2 million up from last year’s profits of $19.15 million, which resulted in a YOY increase of about 16% .  The jump in profits was primarily attributed to a 20% decrease in the cost of the Company’s largest raw material, conventional milk. However, these benefits were partially offset by a 10% increase in the cost of organic milk.

Total operating expenses increased by approximately 12% to $15.19 million during 9MFY12, mainly due to a YOY increase in general and administrative costs.

For 9MFY12, the company recorded total net income of $4.5 million as compared to a net income of $3.2 million for the corresponding period last year; resulting in YOY increase of  40.6%.

Future Outlook:

The following factors indicate that the stock has great future earning potential:

  • Increasing popularity of health products in U.S. markets!
  • Strong sales growth of 15%!
  • Strong profitability growth!


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