Attractive Valuation, Impressive Growth Potential?
One of NGVC’s most attractive attributes is its solid valuation. In light of its recent performance, it would be reasonable to expect NGVC to sport an extremely high price-to-book ratio and show other signs of an inflated valuation. The reality is different: Although the company’s price-to-book ratio of 9.5 appears to be high, it looks like a bargain next to The Fresh Market Inc (NASDAQ:TFM)’s 11.1 figure. Meanwhile, more mature Whole Foods Market, Inc. (NASDAQ:WFM) has a still-elevated price-to-book figure of 5.4. Although Whole Foods is also blessed with exciting growth prospects, it seems curious that the much more promising NGVC has a ratio of less than double that of its peer. Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC)’s PEG ratio is also an encouragingly low 1.25.
While its valuation is clearly attractive, NGVC faces a promising future that could make it look like a true bargain at its current levels. After years of snail-paced organic growth in its Colorado home market, the company has broken out and looks poised to mount a nationwide expansion during the coming years. In its market-beating earnings report, Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) cited strong demand for organic foods and supplements as a driving force behind its plan to expand its footprint by about 20 percent by the close of the fiscal year.
Moreover, NGVC appears to have found a middle ground between bulk organic retailer Trader Joe’s and overly fancy Whole Foods Market, Inc. (NASDAQ:WFM). While its products clearly cater to folks with disposable income, NGVC’s stores have a back-to-basics feel that appeals to “true believers” and cash-strapped students as well. This will bode well for the company’s expansion in the rural market towns and suburban communities for which cost and value are so important.
Invest or Stay Away?
Given the strength of its to-date success and the scope of its expansion plans, NGVC could offer a compelling thesis for long-term investors. While its unique business model and built-in customer base make it an unlikely takeover target for Whole Foods Market, Inc. (NASDAQ:WFM), it may yet emerge as a pickup for The Fresh Market Inc (NASDAQ:TFM), Trader Joe’s or another natural grocer. As such, investors would do well to take a close look at Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC). If its post-IPO performance is any indication, its stock might not remain at these levels for long.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market Inc (NASDAQ:TFM) and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Whole Foods Market, Inc. (NASDAQ:WFM).
The article Why Does This Potential Acquisition Look Like a Steal? originally appeared on Fool.com.
Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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