Meaty sales

As you might expect, Cranswick is a carnivore’s paradise. It supplies pork, gourmet sausages, cooked meats, cooked poultry, hand-cured and air-dried bacon and gourmet pastry products to retailers both here and abroad. And business is good. 

In today’s Q1 statement, the company said revenue over the 13 weeks to 26 June was up 9.6% on last year, due in part to strong demand from retailers. The FTSE 250 member also said it had seen a “gradual but sustained recovery of the food-to-go and food service channel”.

Exports to the lucrative Far East markets were “well ahead” of sales over the same quarter in 2020 due to higher prices too.

Reasonable price

Looking ahead, Cranswick said its full-year outlook was in line with management’s expectations. That was never likely to send the stock soaring. However, the company’s share price was comfortably in positive territory this morning. Indeed, it’s now getting very close to eclipsing the previous price high of 4,200p.

Despite this, I think Cranswick’s stock still looks reasonably priced. A forecast price-to-earnings (P/E) ratio of a little less than 19, before markets opened, isn’t excessive. For this, I’d be getting a company that boasts a solid balance sheet. It’s also one that continues to invest for growth. With regard to the latter, it’s now successfully raised capacity at its poultry facility in Eye, Suffolk. Production at its new bacon facility in Hull has also commenced.

I’m also attracted to the consistently rising dividends. This tends to be indicative of a well-run, defensive business with predictable earnings.  

Potential threats

I suppose one potential threat to the business is the growing interest in products produced by the likes of US giant Beyond Meat. There’s certainly evidence to suggest that more people have embraced veganism in recent years. 

Having said this, committed meat-eaters are unlikely to make the switch to lab-grown substitutes quickly. Any concerns they may have about how Cranswick may go about its business may also be assuaged by the company retaining its Tier 1 status in the Business Benchmark on Farm Animal Welfare framework for the fifth year running. This essentially means that the FTSE 250 firm is highly regarded for its handling of animals. Interestingly, it is one of only four organisations in the world to receive this accolade. 

From a more general perspective, the argument that I could get faster growth elsewhere is likely true. However, this could require a higher level of risk. That would deviate from my ‘slow and steady’ strategy, especially if it involved buying stakes in headline-grabbing but unprofitable companies. It can often be the case that businesses no one is talking about make for better investments.

Still bullish

Cranswick’s stellar record of steadily improving its owners’ wealth over the years leads me to think that this would still be a great addition to my own growth-focused portfolio. Based on today’s update, the company’s track record, and fair valuation, I’d feel comfortable buying today.

The post This under-the-radar FTSE 250 stock looks great value to me appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After a promising start, the Oatly (LSE: OTLY) share price is now sinking back to its IPO price of $17 a pop. What’s going on? And is this an opportunity for UK investors like me to get involved?

Oatly share price: what gives?

It all started so well. The Oatly share price shot out of the gates on 20 May as its stock began trading in the US market. The involvement of celebrities such as Oprah and Hollywood actress Natalie Portman as investors only raised the Swedish company’s profile even higher. Even Starbucks Chairman Howard Schhultz was a backer. 

And who can blame them for wanting to get involved? Last year, Oatly managed to double revenue to $421m as its plant-based milk and other products continued to be adopted in coffee shops all around the world. The nutritional benefits coupled with a ‘right-on’ environmental message proved an intoxicating mix for market participants.

Unfortunately, reality now appears to be biting down on the Oatly share price.

Reality bites

Of course, a drop in the value of a newly-listed stock isn’t all that unusual. It is to be expected that traders would look to profit from the hype surrounding the initial flotation before moving on to the next shiny new thing.

This makes even more sense when it’s remembered that this company doesn’t make a profit. Oatly reported a net loss of $60.4m last year as it invested in marketing its brand and expanding its range.

Now, all this is fine when things are going swimmingly and traders are whistling on their way to work. It’s not quite so comforting when there’s talk of Covid-19 infection rates rising. Big growth stocks also tend to fall out of favour when inflation rears its head.

So, what happens next?

While I’m in danger of comparing apples with oranges here (maybe oat-based milk substitute with meat substitute burgers), I wonder if we can learn anything from the performance of Beyond Meat. 

Tellingly, Beyond Meat’s share price has been all over the place in the last two years. Those buying the stock at the end of July 2019 will still be heavily under water. Those who bought during the March 2020 market crash will be close to trebling their money. With volatility like this, it’s no wonder the company continues to attract the attention of short-sellers.

Problematically, those doubters seem to now be setting their sights on Oatly. One short-seller — Spruce Point Capital — has now broken cover to question the investment case. This includes asking how a company that makes a similar amount of revenue to Beyond Meat can have a market value that is almost 40% higher. It’s a fair point. 

Of course, the presence of a short-seller or two isn’t a reason for me not to buy this company’s stock. However, it may be the beginning of a sustained attack on the company that could send the Oatly share price even lower. 

I’ll pass…for now

As I mentioned when recently commenting on a promising UK small-cap, I’m bullish on the alternative food sector. Even so, the recent performance of Oatly stock and some ‘interesting’ headlines makes me think it might be wise to hold off buying for now. I don’t see an end to the weakness just yet. 

The post What’s going on with the Oatly share price? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. and Starbucks. The Motley Fool UK has recommended the following options: short July 2021 $120 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Small-cap stocks tend to be under-researched by professional investors. This makes them a potential source of great returns for private investors like me who can buy before they catch on more widely. With this in mind, here are two that I’d be willing to begin building a position in today.

SDI

SDI (LSE: SDI) designs and manufactures scientific and technology products for use in digital imaging and sensing and control applications. Like FTSE 100 health and safety giant Halma, it’s actually a collection of businesses that all contribute to the bottom line. The shares are up over 300% in the last 12 months! That’s despite the business being impacted by Covid-19-related shutdowns.  

Full-year (FY21) numbers are due in mid-July. Based on what the company had to say in May, I don’t think those already invested need to worry. 

In its most recent update, SDI said that revenue and adjusted pre-tax profit of roughly £35.3m and £7.4m, respectively, would likely be reported next month. Importantly, these were improved estimates from those given in February thanks to “robust” sales in March and April. This is impressive considering the company had reported that it would already exceed analyst predictions two months earlier.

Any drawbacks? Well, the shares don’t scream value. A forecast price-to-earnings (P/E) figure of just under 30 means that SDI has its work cut out to keep impressing the market. Then again, I do wonder if management’s decision to not change its expectations on FY22 despite recent momentum could see it surprising on the upside next month. After all, the lifting of restrictions will surely allow the company to pick up even more business in the months ahead.

Regardless, an investor like me shouldn’t let a single report on trading dictate whether I buy or not. As such, I’d be happy to start buying this small-cap stock today. 

Agronomics

Alternative food companies are hot right now. In the US, stocks such as Beyond Meat have grabbed investors’ attention, as has the recent (successful) listing of Oatly.

As a UK investor, I’m not exactly spoilt for choice in this area. However, one option I like is Agronomics (LSE: ANIC). It’s focused on owning companies that specialise in cultivated meat. This is grown in a lab from cells rather than taken from slaughtered animals.

In addition to addressing concerns about animal welfare, this process is far more environmentally friendly. As things stand, almost 50% of the water used in the US goes on raising animals for food. They also consume 80% of all antibiotics due to being kept in less-than-ideal conditions.

Agronomics believes its companies (including Blue Nalu and Mosa Meat) will help disrupt the $7.3trn global meat, poultry and seafood market. That’s a bold claim and I suspect getting people to eat ‘clean’ won’t be a smooth process. The fact that it’s a small-cap stock also means the share price could be volatile. It’s already down over a third in value since hitting a high of 37p only last month.

Notwithstanding this, I do find the investment case pretty compelling. The fact that Richard Read (founder of Innocent drinks) and entrepreneur Jim Mellon are on the board is particularly encouraging.

Like SDI, I’m not sure I’d go ‘all in’ right now. However, I’d have no trouble taking a small stake in Agronomics today. 

The post 2 small-cap shares to buy today appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. The Motley Fool UK has recommended Halma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The falling Beyond Meat share price

As far as I can tell, the recent decline of Beyond Meat’s share price appears to stem from two leading factors. The first and less concerning is its high-flying valuation. When it was trading at around $192 per share, the company had a market capitalisation of around $12bn, placing its price-to-sales ratio around 30 times.

Seeing high valuations on growth stocks is not uncommon. However, these also tend to suffer the most when bad news comes along. In the case of Beyond Meat, its first-quarter results were not as good as investors had hoped. Analyst forecasts expected total revenue for Q1 to be around $113.8m. However, while revenue did grow by 11%, the firm only achieved $108.2m in sales. Naturally, after missing shareholder expectations, the Beyond Meat share price experienced a bit of a sell-off.

The second reason for the decline appears to stem from growing uncertainty surrounding the fracturing meat alternative industry. Over the past few months, a growing number of companies have been entering this space. One notable competitor to Beyond Meat is Impossible Foods. And now the firm also has to worry about Tyson Foods (NYSE:TSN), which recently announced the launch of its own plant-based burgers.

The rising competition

With Tyson Foods being the biggest producer of beef, poultry, and pork in the US, this rival firm is a well-financed multi-national business. And has already announced its new product will be available in 10,000 stores across America. Needless to say, it seems to be a considerable competitive threat.

However, while the rising level of competition is quite concerning, there are some reasons to be optimistic about the Beyond Meat share price. According to Tyson Foods, plant-based protein sales exploded by 148% in 2020, with no signs of slowing down. And so, with the market size growing at a considerable pace, the ability for Beyond Meat to continue its growth despite competitive pressures appears to remain intact. At least that’s what I think.

The bottom line

Even after declining to around $110, the Beyond Meat share price is still trading at a considerable premium, sitting at a price-to-sales ratio of about 17. Given the popularity of Beyond Meat’s products to date, I think the company is perfectly capable of retaining a considerable portion of market share.

Tyson Foods’ new burger does directly compete with its own. However, even if it proves to be more popular, Beyond Meat has a vast collection of other products (such as plant-based sausages, chicken, and mince) that can maintain its growth. Therefore, despite the risks, I would consider adding this business to my portfolio.

The post What’s going on with the Beyond Meat share price? appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in Beyond Meat. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.