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Should You Cash Out On Amira Nature Food's Second Quarter Gains?

|Includes: ANFI, Costco Wholesale Corporation (COST)

Shares of Amira Nature Foods (NYSE: ANFI) traded around $15 per share before its most recent earnings report. However, the stock is now up to $16 as the company beat estimates. In September of this year, the stock traded at $7.5 per share, before making a more than 100 percent rally to trade at about $15. Since its latest report, shares surged then stabilized.

Revenue for the second-quarter of fiscal 2014 increased 36.1percent to $108 million, compared to $79.4 million for the same period in fiscal 2013. The revenue increase was primarily due to increased sales volume both in India and internationally for its basmati rice. Profit after tax for the second-quarter of fiscal 2014 increased 90 percent to $6.3 million, compared to $3.3 million in the same quarter of fiscal 2013. Basic diluted earnings per share was $0.18, compared to $0.09 for the second-quarter of fiscal 2013.

The company maintained its revenue forecast, which calls for $480 million to $507 million in sales in the fiscal year ending March 31. Analysts expect $498.8 million in revenue on average. Karan A. Chanana, Amira's Chairman and Chief Executive Officer, stated, "We are pleased to report strong second quarter financial results, as our revenue increased 36.1% and EBITDA grew 38.1%. Our results reflect our ability to consistently add new customers in India and internationally, enter new markets as well as the continued growing demand for our premium product offerings."

The company's efforts to push branded sales through channels like Costco (NASDAQ: COST) should erase concerns over the capital intensive business model that the company's operations require. Amira trades at a discounted PEG of 0.53 and a discount to its sales with a price to sales of 1.20. Currently, the company shows a price to earnings of 18.27 and has a total debt of around $149 million. Due to this, the company may find it difficult to use its cash reserve of $1.30 cash per share to boost its presence in the industry. Earnings are expected to jump 66 percent this year and 30 percent over the next five years.

Looking at the risks involved, the stock has stabilized around $16 per share. However, there will be objections to Amira as an investment idea. The company reports results by IFRS standards. Additionally, there are risks tied to India's economy. However, I'm of the opinion Amira's growth potential outweighs the risks, and the company remains a possible growth play.