Natural Grocers by Vitamin Cottage Inc (NGVC): Why Does This Potential Acquisition Look Like a Steal?

With barely a year gone by since its IPO, awkwardly named Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) has experienced impressive stock-price appreciation and displayed solid fundamentals. Meanwhile, the company itself continues to expand at a rapid clip. Despite its relatively small size and unusual business model, NGVC is already being branded as “the next Whole Foods.” Indeed, the company has made no secret of its desire to compete with Whole Foods Market, Inc. (NASDAQ:WFM) on its home turf.

For the time being, Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) remains much smaller than its Texas-based competitor. The company currently owns about 65 stores in just over a dozen American markets. Its product lines include proprietary organic-label foods, dietary supplements, fresh produce, and organic or naturally produced dry goods and household items. While it necessarily caters to an upmarket crowd, the firm has not found it difficult to move into “Middle American” locations like Tulsa, Oklahoma. It also has a thriving e-commerce business that serves customers outside of its geographical footprint. Investors who view this firm as a Whole Foods Market, Inc. (NASDAQ:WFM) imitator would do well to remember that it has existed in some form since 1955.

NGVC and Other Organic Grocers

Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) competes with Whole Foods as well as a number of other organic grocers and health stores. Although a financial comparison with Whole Foods is in order, it is important to note that Whole Foods remains the dominant player in the space. Indeed, the company’s market capitalization comes in at nearly $20 billion and dwarfs that of NGVC by a factor of 25. Meanwhile, organic retailer The Fresh Market Inc (NASDAQ:TFM) occupies a happy medium with a market cap of around $2.5 billion.

Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) has proven that it is capable of turning a profit, albeit by a narrow margin. In 2012, it earned nearly $9 million on total revenues of $379 million. Given the competitive nature of the grocery business, this is not an unhealthy margin. During the same period, Whole Foods Market, Inc. (NASDAQ:WFM) earned about $518 million on revenues of $12.5 billion. The Fresh Market Inc (NASDAQ:TFM) posted a profit of $67 million on total revenues of $1.4 billion for a segment-leading margin of nearly 5 percent.

These companies do not have significant debt loads. The Fresh Market Inc (NASDAQ:TFM) has a tiny cash reserve of $11 million to offset a manageable liability sheet of about $15 million. NGVC’s debt-to-cash ratio is nearly identical. Meanwhile, Whole Foods has an impressive cash hoard of $1.1 billion and a minuscule debt pile of $27 million.

Performance Since IPO

Since its public debut in the second half of 2012, Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) has nearly doubled in value. More impressively, the company has remained largely unaffected by the broader market’s recent jitters. At its current stock price of $33.30, NGVC remains near its all-time high and looks quite sound from a technical perspective. Its recent earnings beat should provide the grocer with momentum in the coming months: After a period of consolidation, it would not be surprising to see Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) take yet another leg higher.