Wait A Bit Before Eating Up WhiteWave Foods

Mar.11.14 | About: WhiteWave Foods (WWAV)

Summary

WhiteWave is the way to play the healthy foods trend taking hold these days.

The stock is expensive on future earnings growth potential.

The company is overbought.

WhiteWave Foods Co (NYSE:WWAV) manufactures, markets, distributes, and sells plant-based foods and beverages, coffee creamers and beverages, and dairy products throughout North America and Europe. On February 13, 2014, the company reported fourth quarter earnings of $0.22 per share, which beat the consensus analysts' estimates by $0.02. In the past year the company's stock is up 80.37% and is beating the S&P 500 (NYSEARCA:SPY), which has gained 21.01% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if right now is a good time to purchase the stock for a portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 46.67, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 27 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.44), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 19.15%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 19.15%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 18.6%.

Financials

On a financial basis, the things I look for in general are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of but is sporting return on assets, equity and investment values of 4.9%, 12.7% and 7.9%, respectively, which are all respectable values. In this particular instance I will forego the dividend aspect of the financials because the stock is in my growth portfolio; and in the growth portfolio a stock does not have to have a dividend.

Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in overbought territory with a value of 68.95 and downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line but with downward trajectory with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($29.40), I'm looking at $31.27 to act as resistance and $26.59 to act as support for a risk/reward ratio which plays out to be -9.56% to 6.36%.

Recent News

  1. On 13Feb14 the company reported fourth quarter earnings of $0.22 beating estimates by $0.02 on revenue of $679 million which beat estimates by $14.7 million.
  2. North America sales increased 11% and Europe sales were up 16%.
  3. Sales growth is expected to be in the twenties for first quarter and the rest of 2014!

Conclusion

Health and wellness foods are in style these days and WhiteWave is definitely one of the ways to play it in the stock market. Fundamentally, the company is still fairly priced based on 2015 earnings and expensive on future growth potential. Financially, I believe all the returns are safe and sound. On a technical basis I believe there is some downside to come. Due to the bearish technicals, fair valuation based on earnings, and high valuation with respect to earnings growth I will not be pulling the trigger right now because I believe I can get it at a lower price.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long WWAV, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.