Introduction
Can you believe there’s a consumer staple stock that has outperformed even Nvidia this year? I’m talking about Vital Farms (VITL). This food company, known for harvesting and selling pasture-raised eggs, has achieved remarkable growth. Let’s dive into the secrets behind Vital Farms’ impressive performance and predict whether its stock price could rise even higher in the future.
Why I love Vital Farms Eggs
I’ve always been sensitive to the smell of eggs, but I eat them anyway because they’re good for me. I even struggle with washing the bowl after scrambling eggs or cleaning the pan after making fried eggs because the smell makes me queasy. Living in the U.S., I went on an egg adventure, trying various options. Whether it was white eggs or brown eggs, I couldn’t find any that didn’t have that off-putting smell. I was nearly ready to give up.
Then, I tried Vital Farms eggs for the first time, making an omelette. I was still holding my breath, expecting the usual smell. But to my surprise, there was no unpleasant smell at all, just a delicious, nutty flavor filling my mouth. I was so thrilled, thinking I’d finally found my go-to eggs.
Then it hit me – if this company can pass my sensitive nose test, it must be something special. That’s when I realized I should invest in Vital Farms. This company is definitely worth my money.
How Does Vital Farms Harvest Pasture-Raised Eggs?
Vital Farms is a company that produces eggs by raising hens on pasture. Since its founding in 2007, it has expanded to produce not only eggs but also butter, hard-boiled eggs, and liquid eggs. The founder started the business with just 20 hens.
Today, they partner with farms located in the Pasture Belt to harvest eggs. They have a facility called Egg Central Station where the harvested eggs are packaged, graded, and quality-controlled before being distributed to major food retailers.
The partner farms adhere to strict standards for hen care, including space per hen, type of feed, and pasture rotation management. These efforts ensure that the hens live in a high standard of living, happily laying eggs.
Top Factors Influencing the VITL Stock Price Surge
The increase in revenue can be attributed to two main factors: first, an expanding market share brought in new customers (myself included), leading to higher sales volume; and second, the price of the eggs has risen.
Vital Farms markets these high-quality eggs from happy hens at a higher price than conventional eggs. Despite the price increase ($3.99 in 2021 → $4.82 in 2024), sales have continued to grow, and their market share in the egg industry has recently reached 8%.
Naturally, both revenue and operating profit have significantly improved. In the first quarter of 2024, revenue increased by 24% compared to the same period last year, and EBITDA-based operating profit soared by 110% year-over-year. On the day of the Q1 2024 earnings release, the company reported an EPS of $0.43, which was $0.23 higher than expected, causing the stock price to surge by over 15%. The upward trend continues.
So, why has the operating profit increased so significantly relative to revenue?
According to Vital Farms, the profit boost is due to price/mix benefits, enhanced operational efficiencies, benefits of scale, and lower commodity and diesel costs. While diversifying product lines and improving operational efficiencies are certainly important, what I found particularly meaningful is that sales volume has reached a level where economies of scale come into play. Despite increased shipment volumes, efficiency gains from economies of scale have actually reduced costs in packaging and distribution (S&D $230mn.: 5% of net revenues in Q1 ’24; 7% of net revenues in Q1 ’23).
I believe this is a result of the company’s business model, where they focus on quality control, packaging, distribution, and marketing of the eggs, while the production of eggs is handled by partnered family farms.
VITL Stock Price Forecast for the End of 2024
One thing that really bummed me out was how sharply Vital Farms’ stock price has risen recently. At the beginning of the year, the stock was around $15, but now it’s at about $43. That’s a threefold increase in market value in just six months. As of July 2024, VITL’s stock price is $43 with a P/E ratio of 50, which is quite high. (For reference, the well-known food company Kraft Heinz Co., which sells ketchup and cheese, has a market cap of $42B and a P/E ratio of 15.10.)
VITL is growing, and its EPS (earnings per share) is increasing faster than its revenue. As the earnings per share increase, the P/E ratio will decrease, so I estimated the EPS for the end of this year. I referred to VITL’s financial statements and guidance, but I must admit that my affection bias might have subtly influenced my assessment.
Over the past year, VITL’s P/E ratio has ranged between 30 and 52. If the current operational performance is maintained, the EPS by the end of this year is expected to rise to around 1.2. Considering the current stock market sentiment, it seems that despite the recent sharp rise, there is still room for further growth.
Therefore, I concluded that the stock remains attractive even at this higher price.
| VITL EPS & Stock Price Forecast for the End of 2024 | ||||||
| Index | Revenue | Net Income | Diluted EPS Est. | Stock Price Est.1 | Stock Price Est.2 | Stock Price Est.3 |
| Value | $575.0mn | $52.3mn | 1.21 | $60 | $48 | $42 |
| Criteria | Guidance | Author’s est. | Author’s est. | PER 50 | PER 40 | PER 35 |
| Est. Yield | +39.5% | +11.6% | ||||