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Is Holding Vital Farms Stock a Wise Call After 40% Gain in Six Months?
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Vital Farms, Inc. (VITL - Free Report) , known for its pasture-raised eggs and ethical farming practices, has seen its stock surge by 40.2% over the past six months. Investors who have ridden this rally are now contemplating: Is it time to cash in or hold on to shares?
With a significant rise in demand for its premium products, Vital Farms has continued to capture investor interest. Shares of this Austin, TX-based company have outperformed both its industry peers and the broader S&P 500 index, which have gained 0.6% and 7.9% in the past six months. Vital Farms has even outpaced the broader Consumer Staples sector, which showed growth of 6.5%.
Image Source: Zacks Investment Research
As of yesterday, Vital Farms’ shares closed at $31.98, quite below their 52-week high of $48.41, reached on July 1. The current price reflects a pullback from the recent high, which could imply challenges in maintaining upward momentum or signal an opportunity for further growth if the stock breaks through its previous peak.
As Vital Farms expands its market reach and delivers impressive financial results as evident from its second-quarter 2024 outcome, shareholders might be tempted to stay on board for more potential upside. But does Vital Farms have the fuel to sustain growth momentum?
VITL Aims for $1B Revenues by 2027 With Market Expansion
Vital Farms remains focused on expanding its retail presence, increasing brand awareness and meeting its long-term financial goals. The company's investment in infrastructure, marketing and farm expansion positions it well to achieve its target of $1 billion in revenues by 2027, with a gross margin of at least 35% and an EBITDA margin of 12% to 14%.
A key component of its growth strategy is the significant expansion of its family farm network, which has grown from more than 300 farms at the start of the year to more than 350. This expansion highlights the company’s ability to attract and support new farmers, which is essential for scaling operations and meeting the rising consumer demand for its products.
To enhance its operational efficiency, Vital Farms is set to establish a new egg washing and processing facility in Seymour, IN, scheduled to commence operations by 2027. This facility will complement its existing Egg Central Station in Missouri, which now has $800 million in revenue capacity. Upon completion, the Seymour facility is expected to support about 165 new family farms and generate more than $350 million in additional revenues.
Vital Farms' market presence has also expanded. During its second-quarter earnings call, Vital Farms reported a 19% year-over-year increase in total distribution points in the natural channel, reaching 453, and a 17% increase in the food channel, reaching 215. This growth reflects the strong consumer demand for its premium products and the success of its strategy to enhance shelf presence across key retail channels.
VITL’s Capital Structure Strong, Outlook Robust
Vital Farms has maintained a decent capital structure, with cash, cash equivalents and marketable securities totaling $152.7 million and no outstanding debt as of June 30.
For 2024, management expects capital expenditures to range between $35 million and $45 million. These investments will fund the new facility in Seymour, IN, the expansion of additional farms and the company's ongoing digital transformation.
Building on its strong second-quarter performance, Vital Farms has raised its full-year 2024 guidance. The company now anticipates net revenues of at least $590 million, up from the previous projection of $575 million, and marking growth of at least 25% year over year. Adjusted EBITDA is also anticipated to reach at least $75 million, up from the prior estimate of $70 million, representing a minimum 55% increase from the year-ago period.
How Consensus Estimates Stack Up for Vital Farms
Reflecting the positive sentiment around Vital Farms, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their estimates for the current and next fiscal year by 14.4% to $1.11 and 4.4% to $1.19 per share, respectively. These estimates indicate expected year-over-year growth rates of 88.1% and 7.9%, respectively.
Image Source: Zacks Investment Research
Are Headwinds Enough to Derail VITL Stock’s Momentum?
Vital Farms faces a complex array of challenges that could impact its stock performance. Rising operational costs and margin compression are key areas of concern.
The company has witnessed a significant increase in selling, general and administrative (SG&A) expenses, totaling $33.3 million in the second quarter of 2024, up from $23.9 million in the same period last year. The increase can be attributed to higher professional service costs, increased employee-related expenses, and rising marketing and technology costs. If these operational costs continue to rise disproportionately relative to revenue growth, they could negatively impact profitability.
Management anticipates that the second-half adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin will be lower compared to the first half of 2024 due to higher marketing investments and other growth-related expenses. If these investments do not generate the expected consumer demand or revenue growth, the decrease in EBITDA margins could be pronounced.
Vital Farms Stock Currently Looks Overvalued
Vital Farms’ forward 12-month price-to-earnings ratio stands at 27.39, higher than the industry’s ratio of 16.92 and the S&P 500's 21.55. This elevated valuation indicates that investors may be paying a high price relative to the company's expected earnings growth. Currently, Vital Farms is trading at a higher valuation compared to its industry peers, including Nomad Foods Limited (NOMD - Free Report) , Flowers Foods, Inc. (FLO - Free Report) and Ingredion Incorporated (INGR - Free Report) .
With a Value Score of C, the stock’s premium suggests that much of the potential upside may already be reflected in the price. While Vital Farms has demonstrated strong growth prospects and operational progress, future gains may be limited unless the company delivers better-than-expected results or achieves key milestones that justify its premium valuation.
Image Source: Zacks Investment Research
Your Best Investment Play for VITL
While Vital Farms has showcased exceptional performance and strategic foresight, investors should carefully weigh the stock's elevated valuation and potential market risks. The company's proactive approach to expanding production capabilities and enhancing brand visibility bodes well for future growth. However, ongoing cost pressures and market volatility warrant a prudent investment approach. As such, holding Vital Farms stock could be considered favorable for investors seeking exposure to a leading player in the sustainable food industry, provided they are mindful of valuation metrics and market dynamics. Vital Farms currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is Holding Vital Farms Stock a Wise Call After 40% Gain in Six Months?
Vital Farms, Inc. (VITL - Free Report) , known for its pasture-raised eggs and ethical farming practices, has seen its stock surge by 40.2% over the past six months. Investors who have ridden this rally are now contemplating: Is it time to cash in or hold on to shares?
With a significant rise in demand for its premium products, Vital Farms has continued to capture investor interest. Shares of this Austin, TX-based company have outperformed both its industry peers and the broader S&P 500 index, which have gained 0.6% and 7.9% in the past six months. Vital Farms has even outpaced the broader Consumer Staples sector, which showed growth of 6.5%.
Image Source: Zacks Investment Research
As of yesterday, Vital Farms’ shares closed at $31.98, quite below their 52-week high of $48.41, reached on July 1. The current price reflects a pullback from the recent high, which could imply challenges in maintaining upward momentum or signal an opportunity for further growth if the stock breaks through its previous peak.
As Vital Farms expands its market reach and delivers impressive financial results as evident from its second-quarter 2024 outcome, shareholders might be tempted to stay on board for more potential upside. But does Vital Farms have the fuel to sustain growth momentum?
VITL Aims for $1B Revenues by 2027 With Market Expansion
Vital Farms remains focused on expanding its retail presence, increasing brand awareness and meeting its long-term financial goals. The company's investment in infrastructure, marketing and farm expansion positions it well to achieve its target of $1 billion in revenues by 2027, with a gross margin of at least 35% and an EBITDA margin of 12% to 14%.
A key component of its growth strategy is the significant expansion of its family farm network, which has grown from more than 300 farms at the start of the year to more than 350. This expansion highlights the company’s ability to attract and support new farmers, which is essential for scaling operations and meeting the rising consumer demand for its products.
To enhance its operational efficiency, Vital Farms is set to establish a new egg washing and processing facility in Seymour, IN, scheduled to commence operations by 2027. This facility will complement its existing Egg Central Station in Missouri, which now has $800 million in revenue capacity. Upon completion, the Seymour facility is expected to support about 165 new family farms and generate more than $350 million in additional revenues.
Vital Farms' market presence has also expanded. During its second-quarter earnings call, Vital Farms reported a 19% year-over-year increase in total distribution points in the natural channel, reaching 453, and a 17% increase in the food channel, reaching 215. This growth reflects the strong consumer demand for its premium products and the success of its strategy to enhance shelf presence across key retail channels.
VITL’s Capital Structure Strong, Outlook Robust
Vital Farms has maintained a decent capital structure, with cash, cash equivalents and marketable securities totaling $152.7 million and no outstanding debt as of June 30.
For 2024, management expects capital expenditures to range between $35 million and $45 million. These investments will fund the new facility in Seymour, IN, the expansion of additional farms and the company's ongoing digital transformation.
Building on its strong second-quarter performance, Vital Farms has raised its full-year 2024 guidance. The company now anticipates net revenues of at least $590 million, up from the previous projection of $575 million, and marking growth of at least 25% year over year. Adjusted EBITDA is also anticipated to reach at least $75 million, up from the prior estimate of $70 million, representing a minimum 55% increase from the year-ago period.
How Consensus Estimates Stack Up for Vital Farms
Reflecting the positive sentiment around Vital Farms, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their estimates for the current and next fiscal year by 14.4% to $1.11 and 4.4% to $1.19 per share, respectively. These estimates indicate expected year-over-year growth rates of 88.1% and 7.9%, respectively.
Image Source: Zacks Investment Research
Are Headwinds Enough to Derail VITL Stock’s Momentum?
Vital Farms faces a complex array of challenges that could impact its stock performance. Rising operational costs and margin compression are key areas of concern.
The company has witnessed a significant increase in selling, general and administrative (SG&A) expenses, totaling $33.3 million in the second quarter of 2024, up from $23.9 million in the same period last year. The increase can be attributed to higher professional service costs, increased employee-related expenses, and rising marketing and technology costs. If these operational costs continue to rise disproportionately relative to revenue growth, they could negatively impact profitability.
Management anticipates that the second-half adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin will be lower compared to the first half of 2024 due to higher marketing investments and other growth-related expenses. If these investments do not generate the expected consumer demand or revenue growth, the decrease in EBITDA margins could be pronounced.
Vital Farms Stock Currently Looks Overvalued
Vital Farms’ forward 12-month price-to-earnings ratio stands at 27.39, higher than the industry’s ratio of 16.92 and the S&P 500's 21.55. This elevated valuation indicates that investors may be paying a high price relative to the company's expected earnings growth. Currently, Vital Farms is trading at a higher valuation compared to its industry peers, including Nomad Foods Limited (NOMD - Free Report) , Flowers Foods, Inc. (FLO - Free Report) and Ingredion Incorporated (INGR - Free Report) .
With a Value Score of C, the stock’s premium suggests that much of the potential upside may already be reflected in the price. While Vital Farms has demonstrated strong growth prospects and operational progress, future gains may be limited unless the company delivers better-than-expected results or achieves key milestones that justify its premium valuation.
Image Source: Zacks Investment Research
Your Best Investment Play for VITL
While Vital Farms has showcased exceptional performance and strategic foresight, investors should carefully weigh the stock's elevated valuation and potential market risks. The company's proactive approach to expanding production capabilities and enhancing brand visibility bodes well for future growth. However, ongoing cost pressures and market volatility warrant a prudent investment approach. As such, holding Vital Farms stock could be considered favorable for investors seeking exposure to a leading player in the sustainable food industry, provided they are mindful of valuation metrics and market dynamics. Vital Farms currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.