Time to Take a Bite of Smart Balance

I've owned Smart Balance (SMBL) on and off over the past several years. The story hasn't changed, but the share price is inching lower. An opportunity is at hand if you can wait five years. Regardless of the "market's" results, Smart Balance will reach $1 Billion, control a significant share of the dairy case, and sell out for a very nice price.

The story here is one of smart management that has built brands successfully before. Steve Hughes, SMBL CEO, has been the architect of tremendous brand growth at ConAgra (CAG), Dean Foods (DF), and Celestial Seasonings. His team has years of experience and the goal of building SMBL into a billion dollar foods concern. They are currently at the $250MM level after several years of business.

Smart Balance is a brand. It doesn't own manufacturing or research facilities. It is product, marketing, and people. It makes a little money and generates cash, enough to pay down its acquisition debt to $65MM. They should be debt-free in a year or so. The lack of manufacturing is an advantage in our current tough times.

At its current share price of $5.90, the stock can be gathered in at a price that is significantly lower than the IPO price, employee options, and the entry points of some of their largest private equity investors. While it isn't at its 2 year low point, it is well off its highs and hasn't participated in the market's run up.

A reasonable plan is to buy some and tuck it away for 5 years. Forget about what the market price is and let Steve Hughes do his magic. Within that timeframe, he'll sell the company and you'll end up with a boatload of ConAgra (CAG), Kraft (KFT), or Heinz (HNZ) shares. That's my bet anyhow.
Disclosure: William Kabourek owns shares of Smart Balance.

Comments

[chimpanzee-...:]

I agree. OSS, a hedge fund run by Barrons Roundtable member, Oscar Shafer, bought a ton of stock at $12 some time ago and recommended it in Barrons. I don't know if he still has it. Stock looks like it is sitting at short term support so may even be good for a short term trade. A 50% haircut from where Oscar bought it.

Oct 13 10:14 AM

[morganovich:]

this company has incredibly misleading accounting. they capitalize both marketing and software costs that have no business being capitalized. they have never run them through the income statement. if they had, the comapny has, on a cumulative basis, lost money over the last 6 q's. it also means they have $12 million in unexpensed spending that has to be realized at some point. it's all in the q's. do some homework.

further, their largest customer, walmart, has launched a directly competing product.

IRI data shows unit sales are flat to down. with pricing coming off in this market, this will show up.

further, the rights to the technology expire in a couple years. put this away for 5 years and you'll likely come back to zero.

Oct 14 09:51 AM