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Your Cheap Stocks Editor is the first to admit that we sometimes stretch the limits of sensibility in some of the comparisons we draw here at Cheap Stocks. Last week, we compared the "market value" of a small piece of our little vacation island to St. Joes Corp. We think St Joes looks more attractive in that comparison. This week, we take a look at beverage company Hansen Natural (HANS). This time, our little island wins out.

Sour Grapes

Back in 2003, we had a position in Hansens. We wrote about our experiences in a previous post in March 2005. In our sob story, we described purchasing Hansen's, at the time a stock no one cared about, riding it sideways, and finally selling it after tripling our money. At the time of the post, the stock had gone from a $40 million market cap company, to a $500 million company. We felt bad. Fast forward to now, and Hansens is now a $4 billion company. That's right, a 100 bagger since we initially purchased shares. We are astonished at this company's metoric rise. Maybe we are also disappointed for not hanging onto the shares.

Sales Explosion

Hansen's 2005 sales were nearly $350 million; double 2004's, and nearly triple 2004's. Net income rose from $20.3 million in 2004 to $63.8 million in 2005. The latest reported quarterly sales were $120 million, with net income of $21 million. This company is on fire, and it's expansion into energy drinks has truly paid off. The balance sheet also looks good: $100 million in cash and marketable securities and no debt.

But...

After a recent 4 for 1 stock split, the company now has more than 90 million shares outstanding, and we are wondering how much room this company has left. Sure, sales may continue to grow, but we don't believe Hansen is worth 60 times earnings. The forward P/E is half that, but one small slip in sales and earnings growth, and watch out. We just don't believe Hansen's can continue to grow at such a rapid pace.

HANS' Financials:

Price: $45.83
Mkt Cap:$4.17 billion
Enterprise Value: $4.08 billion
P/E: 60

HANS 1-yr chart:

HANS 1-yr chart

* The author does not have a position in this stock. This is neither a recommendation to buy or sell this security.

Source: One Small Slip and Shares of Hansen Natural are Headed for a Plunge (HANS)