How Jennifer Aniston’s LolaVie brand grew sales 40% with CTV ads
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VALUE VS PRICE
VITL EV/EBITDA Multiple vs ROIC Cycles, Koyfin
Vital Farms is up 18% this week.
That sounds great, but…
It creates a much more important question for anyone who owns the stock, or is thinking about buying it now.
How much higher can it really go?
To answer that, let’s separate two very important concepts in markets:
Price vs value
Price is what you pay, and value is what you get in every deal.
Value in itself can be broken down into two components, both of which create the oscillations and inefficiencies that investors like Warren Buffett got so good at exploiting.
Think of pouring yourself a glass of Coca-Cola, where the faster you pour the more foam builds up above it.
When you stop pouring, or simply slow down, the drink actually catches up to the foam and it then begins to fizzle away.
Coca-Cola is the value, and the foam is the multiple the market places on that value.
And right now, Vital Farms is giving us one of the strongest signals of where those two components are!
EV/EBITDA (forward) multiples rose to a premium above all peers
Return on invested capital (ROIC) collapsed to 0% during that time
It simply means, the market has now built up a lot of foam expecting faster pouring to happen in the near future.
In other words,
“We will pay more for Vital Farms because we believe it will grow profits faster and better than everyone else.”
This may sound counterintuitive to new investors, but cyclical companies become the most interesting when the financials are at their worst.
The question here is whether the numbers represent a permanent damage to the company…
Or the bottom of the cycle.
In Part 1, we covered the egg industry, Vital Farms’ brand, market share, and why I believe the industry is in fact bottoming here.
The stock has already jumped 18%.
But,
That doesn’t mean our thesis is automatically right, and it still doesn’t answer the question of where the price can actually go to.
So today we are going much deeper:
What destroyed VITL’s ROIC and margins
Whether management is able to fix this
What VITL can earn in the future
And more importantly, what all of this makes the business worth in my opinion.
It’s not without risk, and we will talk about those as well.
However, the pros greatly outweigh the cons here.
18% in a week is nice…
But the real opportunity is in finding out whether the rally is over, or if we’re really in for one of those life-changing investments.
Let’s get into it:
Vital Farms Part 2: Financials, valuation, risks.
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