Review & Outlook

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Calavo Growers is Riding the Guacamole Craze

9 September, 2014 by Ben O'Brien in Commentary, Small Cap Stocks

Profiting from latest food craze can be difficult. Often its hard to find a “pure play” stock to invest directly in Greek yogurt, hummus, gluten free food, protein supplements or whatever the hot item of the day seems to be. Many of these markets are dominated by large companies like Nestle or Pepsi or else by privately held firms. And what stocks do exist in this area tend to be already quite expensive.

One exception has been Calavo Growers (CVGW), the leading distributor of avocados in the U.S. The stock has reported impressive results and continually beaten expectations. We hold this “Guac Stock”, as we call it,  in our small cap fund.

(Source: Calavo.com)

With a market cap of just $600 million, the stock still flies under the radar and has a fairly reasonable valuation with a P/E ratio around 25.

Its hard to find exact numbers for the growth in avocado consumption, but no matter how you measure it, it’s big. The healthy snack is quickly becoming a staple. Consumption is growing both among the health-conscious Whole Foods crowd as well as in the rapidly expanding Hispanic population in the U.S. The introduction of burgers with avocado at Burger King and Wendy’s indicates that the former niche food has officially moved into the mainstream.

Calavo buys avocados directly from farmers and distributes them across the country and abroad. The company is increasingly expanding into more profitable processed and packaged avocado products. Calavo has a special expertise in keeping avocados fresh and ripe, a task that can be difficult with the tropical fruit.

This morning the company reported strong quarterly earnings and the stock rose more than 3%. Earnings Per Share (excluding a large one-time non-operating gain) came in at 53 cents, soundly beating the average analyst estimate of 46 cents. Sales rose 12.2 percent to $218.7 million from $194.9 million last year. Analysts expected sales of $217.94 million.

The company said it remains on target for record earnings this year. The stock is up more than 30% year-to-date.

Guac

As a reasonably priced way to participate in a large and fast-growing food trend, Calavo continues to look like an attractive long-term stock in the small cap consumer staples sector.