Hain Celestial: Add Some Zing to a Healthy Portfolio

I've been eyeing shares of Hain Celestial (NAS: HAIN) for the real-money portfolio I'm managing for Fool.com for quite some time. I've baked socially responsible investing into my Prosocial Portfolio strategy, and this company's leadership role as a pure play in the natural and organic food space makes it a perfect fit.

Hain Celestial's seemingly expensive stock price previously rendered a buy unappetizing to me. However, given the company's impressive growth and initiatives over the last year, I've decided to go ahead and buy a helping of its shares.

The business
One of Melville, N.Y.-based Hain Celestial's best-known brands is the Celestial Seasonings brand of teas, but there's much more to this company, which was formed in 1993 by founder, CEO, and chairman Irwin Simon. The company also manufactures, markets, and distributes many other natural and organic brands, such as Terra, Garden of Eatin', FreeBird, Soy Dream, Health Valley, Ethnic Gourmet, and Avalon Organics.

Hain Celestial seeks to provide "better-for-you" products to consumers, helping them lead what it has trademarked as "A Healthy Way of Life." The company is also committed to growth while implementing eco-conscious business and manufacturing practices.

Hain Celestial's biggest business segment is by far its "grocery" arena, which includes items as varied as infant formula, baking mixes, frozen entrees, and fresh fruit; that sector alone generated 68% of consolidated net sales in fiscal 2012. Interestingly, although Celestial Seasonings is so well known, tea represented just 8% of Hain Celestial's sales in 2012.

While Hain Celestial does most of its business right here in the U.S. (America represents 72% of its fiscal 2012 sales), it's also got some overseas exposure. Last year, the United Kingdom represented 14% of sales.

Why I'm buying
I wouldn't call Hain Celestial a dirt cheap value stock right now, but its financial performance this year has been impressive and recent market weakness has dragged the stock price down from recent highs.

Although I had previously decided to wait on Hain Celestial stock due to what looked like too-rich multiples, it's been serving up plenty of earnings and sales growth, making my previous impression look premature. In fact, last night's quarterly results showed the company's still on a tear, reporting a 25.4% increase in net sales and a 56.6% increase in net income from continuing operations. The stock's weakness today following earnings makes it even more tasty.

Hain Celestial also possesses far more competitive advantage than a similar stock like recent IPO Annie's (NYS: BNNY) . Annie's has its work ahead of it, given its reliance on one brand that's best known for organic mac and cheese.

Meanwhile, Hain Celestial is growing overseas. Its 14% sales share from the U.K. is up from just 4% the previous year. Hain Celestial recently closed its acquisition of U.K.'s Premier Foods, which provides peanut butter, honey, jam, marmalade, and chocolate in that market under various brand names, pointing to further growth in that area.

Last night Hain Celestial also announced plans to acquire New York City-based BluePrint, which makes juice cleanses and single-serve raw juices, a fascinating strategy reminiscent of other companies with similar aims into healthy consumption.

Part of the reason I decided to wait on Hain Celestial in late 2011 was the sense it was too pricey; I found its PEG ratio of 1.78 a little high for my blood, and I wasn't terribly convinced it could outperform high expectations. Given its growth expectations now and its stock price, its PEG ratio has recently fallen to a more tantalizing 1.43.

I now believe more strongly in Hain Celestial's bright future and its potential to outperform, with its strategy fired up by logical acquisitions and major presence in the growing natural and organic products space.

And now, the risks
Although Hain Celestial is a leader in its niche, it competes with all kinds of companies great and small. Take privately held Amy's Organic.

Many giant consumer-goods companies don't just compete with the company by simply providing food, but battle Hain Celestial on its own turf, too. For example, Kellogg (NYS: K) owns brands like Kashi, and M&M Mars distributes Seeds of Change. General Mills (NYS: GIS) peddles the Cascadian Farm, Larabar, and Muir Glen brands.

Although healthier lifestyles are often attributed to natural and organic goods, that doesn't mean consumers will continue making the shift to these products. Economic conditions are fragile, and many consumers may be forced to go for cheaper merchandise.

Furthermore, every once in a while news headlines will ravage organics' healthy reputation, and while such news stories tend to be oversimplified, they could also negatively impact consumers' impressions. Sourcing organic products could become difficult, too, depending upon a variety of factors including how many farms grow organic crops, climate conditions, and, of course, the possibility that scarcity could make such ingredients more difficult to obtain.

In addition, Hain Celestial's largest customer, distributor United Natural Foods (NAS: UNFI) , represented 18% of its net sales last year. In its risk factors, the company also brought up the idea that consolidation in the retail and specifically the grocery space could create organizations with heftier negotiating power that could negatively influence Hain Celestial's business.

Foolish bottom line
The healthy eating and living trend is sure to keep on growing, and Hain Celestial's attacking that market with all it's got. It's what its business is all about. So it's time for me to add some shares of the company that brought us products like Lemon Zinger to this portfolio.

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The article Hain Celestial: Add Some Zing to a Healthy Portfolio originally appeared on Fool.com.

Alyce Lomax has no positions in the stocks mentioned above. The Motley Fool owns shares of Hain Celestial. Motley Fool newsletter services recommend Hain Celestial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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