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| Source: | LOHAS Weekly Newsletter |
| Published: | Sunday, October 01, 2000 |
The industry, as represented by the NBCI, is fairing better than its broad market counterparts.
The overall measure of performance for the industry as a whole shows 15.9% growth for the year. The Russell 2000 is up 10.0% for the year, beating the larger market indices, though it still trails the NBCI’s gain. This is significant because the Russell 2000 consists of companies with very small market valuations, which allows a more meaningful comparison to the predominantly small cap natural products industry.
On the other hand, the Natural Business Top 20 index, which includes the largest and most widely followed publicly traded companies in the natural products arena, is down 2.4% for the year.
The Food & Beverage sector was the industry’s shining star for the year, posting year-to-date growth of 12.1%. Although the sector took a hit in 3Q, investors appear to be rewarding those companies that have astute management and defensible market niches. Eleven out of the 16 companies in this sector are profitable—a turnaround from previous years. Green Mountain Coffee (GMCR) has been a success story, albeit a quiet one, showing a year-to-date return of 127.7%.
The Botanicals & Dietary Supplements sector continues to struggle even though the index for this sector is up 33.7% this year. Since six of the seven biggest gainers were companies with stock prices under $2, which is hardly a demonstration of strength. Martek Biosciences (MATK) is the exception with a year-to-date return to 72.4%. Also, most of the companies in this sector have had negative stock price performances so far this year.
This sector is diverse as it includes ingredient suppliers, intermediate processors, and brand and direct marketers. The most consistently performing segment within this sector in terms of profitability are direct marketing companies, such as Herbalife (HERBA), Mannatech (MTEX), Nature’s Sunshine (NATR) and Usana (USNA).
The Retail & Distribution sector has performed dismally in 2000 with a year-to-date return of –24.6%. This sector contains many of the industry’s poorer performing companies, with five of the 10 companies in the sector posting a year-to-date return of less than –50.0%. United Natural Foods (UNFI), up 22.4% for the year, continues to re-establish its credibility among investors. Both Whole Food (WFMI) and Wild Oats (OATS) were up sharply in 3Q, though their respective performances this year sharply diverge—WFMI up 3.9% and OATS down 49.3%.
It’s no surprise that e-commerce companies account for a significant portion of the losses of this sector. Many industry participants remain pessimistic about the near-term prospects for a turnaround in sales and profit performance of e-commerce companies in this marketplace.
The above average growth prospects for natural products continue to make this sector attractive for investors. On the other hand, investors have learned the hard way that it takes more than rapid top-line growth to create long-term stockholder value. Investors, who are bullish on the industry fundamentals or are attracted by the low P/E ratios of many of these companies, need to evaluate the management teams of the companies in which they are interested.
Chuck Slotkin is president of and Doug Polignano is an analyst with Nature’s Equity, Inc., a New-York-based investment banking and business development firm.
Contact: 212.580.1666,
info@naturequity.com.