We came across a bullish thesis on Lifeway Foods Inc (LWAY) on Value Degen’s Substack by Unemployed Value Degen and Mexican Investor. In this article we will summarize the bulls’ thesis on LWAY. Lifeway Foods share was trading at $21.08 as of Sept 6.
A close-up of a glass bottle of kefir, revealing its probiotic-based properties.
Lifeway Foods (LWAY), a leading producer of kefir and other probiotic-based products, has captured the attention of investors due to its potential acquisition by French dairy giant Danone. With Danone already holding a significant 24% stake in LWAY, the odds of a successful acquisition are notably higher, as research indicates that acquisitions involving a “toehold” stake tend to be more successful on average than those without. This toehold is akin to placing a quarter on an arcade machine to claim the next game; it signals to other potential acquirers that Danone is already in line to buy the company when the founder, Julie Smolyansky, feels she has accomplished her goals. In the meantime, LWAY benefits from Danone’s expertise, advice, and distribution relationships as it expands its business.
LWAY has demonstrated impressive growth, with sales increasing at an annual rate of 11.46% between 2019 and 2023. If the company can maintain a 10% annual growth rate for the next five years and Danone acquires it for 3x revenue—an average multiple Danone has paid for previous acquisitions—investors who buy LWAY at today’s price of $20.91 could see a 22.4% return. However, despite LWAY’s growth potential, the company has been embroiled in family drama involving CEO Julie Smolyansky and her mother and brother, Ludmila and Edward. This ongoing drama, coupled with pressure from activist investor Kenan Wealth Management, could lead to increased volatility in LWAY’s stock price, potentially creating buying opportunities for investors.
While LWAY may not fit the traditional mold of a value stock, its potential acquisition by Danone presents an intriguing opportunity for investors. The toehold stake held by Danone, combined with LWAY’s growth prospects and the possibility of a strategic sale, makes LWAY a compelling investment, even amid the family turmoil. Investors should remain vigilant regarding LWAY, as the likelihood of a pullback in September and October could offer an attractive entry point.
Lifeway Foods is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 10 hedge fund portfolios held LWAY at the end of the second quarter which was 11 in the previous quarter. While we acknowledge the potential of LWAY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as LWAY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
