Should you go nuts about this company? $JBSS

Market Watch just did a quick story on John B. Sanfilippo & Sons [stckqut]JBSS[/stckqut]. I really haven't followed the company so it intrigued me.  In my initial evaluation, the company would probably rate a Fair on my Confident Investor Rating scale. The intriguing thing was the unusual reason it did not come out as a Good company.

Typically, companies drop off of the Good list because they are poorly run. Most often it is not because they did not increase their sales enough but rather the earnings were not growing well enough. This typically means that costs are increasing faster than revenue.

John B. Sanfilippo & Sons is different. The increase in the EPS and EBIT is excellent and the P/E is growing nicely. It is their sales revenue that is not growing well enough, in my opinion, to make the Good list. This is usually the easiest thing for a company to fix - it simply means better execution from the sales and marketing department. Increasing earnings means the company needs to increase sales AND control costs - much tougher to do if the controls are not already in place.

In my mind, John B. Sanfilippo & Sons appears to have some good management in place. Now they just need to hire some excellent sales and marketing types to drive the top-line growth. Since it is a family-run company, let us hope the managers make this investment.

Here are a few excerpts from the Market Watch article for you to enjoy. You should click through to read the rest.

But the nut stock that intrigues me most is John B. Sanfilippo & Sons, a family-controlled company based in Elgin, Ill., that processes and markets peanuts, cashews, almonds and other nuts. It’s been around since 1922.

It owns the Fisher Nuts and Orchard Valley brands and produces private-label nuts for a lot of big retailers, including Wal-Mart.

 


Adam Strauss, co-manager of the Appleseed mutual fund, is a big investor and a fan. He explains that the company has become more proactive in recent years about marketing and focusing on the consumer. Earnings, he says, are also artificially depressed on the books as the company takes a big depreciation charge for a new facility in Illinois.

 


John B. Sanfilippo & Sons stock went, er, nuts during the Atkins Diet craze last decade, hitting $50 at one point. Today it’s $13. It’s come back down in recent months, after a huge run-up in the past two years. Small company stocks are volatile, of course: It just takes one or two big sellers to mark it down.

There are concerns in the nut business, like anything else. Commodity prices have been incredibly volatile in recent years. Consumers are watching their budgets these days. And raw nut prices tend to rise faster on the way up than the company can raise its own prices: The lag can squeeze margins. The company, furthermore, does not pay a dividend. The Sanfilippos own 68% of the voting stock. You’re an outsider.

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