WhiteWave Foods Is Growing Like a Weed, but Is It a Buy?

According to WhiteWave Foods CEO Gregg Engles, the plant-based food movement is "exploding" -- and according to the stock movement since its spinoff from Dean Foods in the fall of 2012, the company is going along for the ride and loving it. Unsurprisingly, WhiteWave is continuing its strong double-digit top- and bottom-line growth on the back of huge demand domestically and a quickly growing international business. With freshly raised guidance and the full blessing of analysts and investors, it doesn't look like anything will slow WhiteWave down in coming periods. Does that mean investors can still get in at a good price?

Almond joy
As has been the case for some time now, WhiteWave's Silk products are leading the company higher and higher, especially fueled by the rapid adoption of almond-based dairy alternatives in the United States. Silk's almond products grew sales by more than 50% and now represent more than two-thirds of WhiteWave's plant-based category. This is the No. 1 almond milk provider by market share, which is a prime position considering consumer and industry trends. In a largely commoditized product category such as this one, brand power triumphs over all. Silk is way ahead of the pack.

Every other segment is growing comfortably as well and across all regions. Europe is a great source of growth (and will be even more important going forward), with a 24% jump in sales during the recently ended quarter. Even its less hip and trendy segment, coffee creamers for consumers and restaurants, is seeing meaningful gains.

WhiteWave is an easy story to understand -- it's the market leader in alternative and premium dairy products, and we are in the midst of a tremendous growth spurt in the health-focused food boom.

Room for more?
WhiteWave trades at roughly 27 times forward earnings and holds an EV/EBITDA of more than 21 times. Looking ahead, free cash flow may not show much growth as management announced increased capital expenditures due to capacity increases. The company clearly sees unmet demand, though building out in the midst of a growth stage might cause some concern. By the time the new capacity is brought on-line and adding value, there could be a slowdown in the rocket-ship growth of plant-based foods.

The market loves WhiteWave Foods, and for good reason, but its competitive advantages and industry tailwinds may already be baked into the stock price at this point. As many know, that certainly does not preclude the stock from running up higher, but investors need to keep in mind that there is material downside risk here.

ROI will be a particularly important metric to watch in coming periods. As the company increased its 2014 capex to $15 million above the previously guided $260 million, investors want to make sure the added capacity and incremental volume generate an appropriate return. As its former parent, Dean Foods, knows, being caught in a slowing or declining demand swing with too heavy an asset base can cause plenty of distress for the company and its investors. With $1.3 billion in long-term debt, the company requires healthy cash flow for years to come.

At present, things look great for WhiteWave and its existing investors. While prospective ones may want to wait for a more appealing entry price, this is one food maker sailing strong into the future of its industry.

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The article WhiteWave Foods Is Growing Like a Weed, but Is It a Buy? originally appeared on Fool.com.

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends WhiteWave Foods. The Motley Fool owns shares of WhiteWave Foods. 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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