One of the underperformers in my basket of stocks is Vital Farms (NASDAQ:VITL) as it seems that I have misjudged the situation a bit. In September 2020, I praised the company for posting solid results accompanied by a conservative guidance, issued alongside the first quarterly earnings report released since the company went public in July 2020.
Growth has continued to slow down during the year, but moreover the 2021 guidance looks a bit soft amidst difficult growth comparables and margin pressure amidst rising input prices. This makes the situation a bit tricky, as the leadership role of the company in a growing end market makes shares look compelling in the long haul, certainly if execution is delivered upon.
The (Former) Thesis
When Vital Farms went public in July 2020 it immediately hit my radar, as I thought it was an interesting company as a pure-play on ethical farming. This positioning and the potential transformation within the industry looked interesting, even as the company guided in a cautious manner for the remainder of the year.
The company was founded in 2007 with a mission to bring ethically-produced food to the table, that is better for people, animals and the planet. The company started with eggs and as this soon was picked up by Whole Foods, it earmarked the start of a solid growth trajectory. The company is challenging the incumbent food model as it assembles eggs from 200 small family farms to its central egg station, and from there serves its distributors.
The total US market for shell eggs is $5.4 billion, at least according to estimates at the time of the IPO, with the company having just a small share. Solid growth in this market and adjacent markets such as pasture raised butter, liquid whole eggs and hard-boiled eggs make the addressable market a bit
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