SunOpta: A Hidden Gem In The Organic Foods Market

| About: SunOpta, Inc. (STKL)
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Demand for natural, organic foods has grown rapidly due to global awareness of healthy eating benefits.

Distributor SunOpta exhibits better value for investors than its peers United Natural Foods and Hain Celestial Group.

SunOpta's record Q1 revenues have sparked insider interest.

Have you had your daily dose of vegan, non-GMO, organic, and/or natural food today?

Healthy Long-Term Trend

Investors are biting down on the global organic, natural foods market. Thanks to environmental concerns, increased health awareness, animal welfare and food safety, organic and unmodified food demand is on a natural high. The global market for organic products reached almost $64 billion in 2012, and in the United States it is predicted to grow at a compound annual growth rate, CAGR, of 14% from 2013 to 2018.

SunOpta Exhibits Highest Value

In the organic distribution market, United Natural Foods (NASDAQ:UNFI) and Hain Celestial Group (NASDAQ:HAIN) are major players. However, while these strong companies have excellent earnings and growth prospects, SunOpta, Inc. (NASDAQ:STKL) presents more value to the investor. This company's value is derived from its lower SG&A costs and increased sales in the high margin packaged foods sector.

Despite its smaller market cap, SunOpta has one of the largest organic raw material ingredient sourcing and supply networks in the world. The company reported record first quarter revenues of $333.5 million, up 17.9% year on year. In comparison, UNFI's second-quarter earnings were up 13.6% from the same quarter in 2013. SunOpta reported first-quarter EPS of $0.10, beating the analyst estimate of $0.08.

Conservative Cuts by STKL

STKL's record numbers were due in part to its conservative spending efforts. The company's SG&A expenses for fiscal 2013 increased 7.4% over the previous year, while HAIN had a year-over-year increase in SG&A of 19.7% -- more than double that of SunOpta. This is attributed to HAIN's serial acquisition strategy -- also aggressively pursued by UNFI -- which is expected to drive growth going forward, but also cuts into their bottom line. In contrast, SunOpta strategized to divest all non-core distribution businesses, land, and buildings. This was successfully achieved at the end of fiscal 2013.

UNFI and HAIN Are Not Cheap

Furthermore, UNFI and HAIN are expensive. The trailing P/E for United Natural Foods stands at 28.38 and for Hain Group it is higher at 34.93. It is justified, considering UNFI's Q2 sales surged 13.9% to $1.6 billion compared to fiscal 2013 and HAIN's second-quarter sales increased 17%, but the stocks are setting a high bar for the organic foods market. HAIN shares are currently at 25 times NTM P/E compared to a 32% discount less than two years ago, while UNFI shares have increased from $15 in 2009 to a high of $80 earlier this year. HAIN has recently been downgraded by analysts at Citigroup and Jefferies Group from a "Buy" to a "Hold."

Better Margins, Great Price

SunOpta specializes in a "Field to Table" business model, meaning it sources, processes and packages natural and organic food products for over 12,000 companies globally. It is the world's leading provider of organic soybeans, oat fiber and sunflower seeds. SunOpta previously focused on the revenues from the distribution of these lower-margin raw materials. Currently, the company is transitioning to make the higher margin packaged foods the majority (60%) of their business, a change that will positively affect its future earnings growth.

These factors make the low cost/high value STKL stock, currently valued at $12.96, very appealing. Insiders see this potential too -- SunOpta Director Michael Detlefsen purchased 5,000 shares of the stock on May 21. Following this acquisition, he directly owns 16,780 shares valued at about $206,562. Overall, SunOpta has currently been assigned an average rating of "Buy" by six out of eight analysts.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.