Amplify Snack Brands (BETR) CEO Tom Ennis appeared on Jim Cramer's "Mad Money" Thursday for the first time since the company went public a little more than six months ago.
Like those of many members of the IPO Class of 2015, shares of Amplify have been crushed since its debut. The stock is down more than 35% from the price of $18. But the stock has performed much better of late, up nearly 20% year to date, including a nearly 18% run since the company delivered better-than-expected fourth-quarter results, along with optimistic guidance for 2016 earlier this month.
Though you might not know Amplify Snack Brands the company, you've probably seen its lead product line SkinnyPop, a "better for you" ready-to-eat (RTE) popcorn, which already has the No. 2 market share in its category (Behind PepsiCo's (PEP) Smartfood) and is growing at more than double the rate than any other brand in the space. The company's other product line, Paqui Tortilla Chips, a line of "better for you" tortilla chips, which Amplify acquired in April 2015, just launched nationally in February and is set up to succeed by leveraging the distribution channels that have already been established by SkinnyPop. SkinnyPop is sold in Costco (COST), Sam's Club, Wal-Mart (WMT), Target (TGT) and most other major retailers. The Paqui national rollout, combined with the introduction of new flavors for SkinnyPop, should make Amplify a more important relationship for its end retailers, which will only increase its power to dictate store placement, display options and more. The company is only beginning to approach an international expansion at the moment, but that, too, could present an intermediate-term growth opportunity.
BETR shares were quite expensive when they came public, offered at more than 30x analysts' initial 2017 earnings estimates and, in retrospect, the timing of the offering was unfortunate as it occurred in early August 2015, just before growth stocks fell out of favor. But everything has a price and even after the shares' recent gains, they still trade at just about 17.5x 2017 earnings estimates, offering a significant discount to many larger competitors in the packaged foods space, including the king of salty snacks and beverages, PepsiCo (about 20x) and the global snack and sweets power Mondelez International (MDLZ) (about 20x). BETR is much cheaper than the similarly health focused WhiteWave (WWAV) (about 25x) and it is even slightly cheaper than Hain Celestial (HAIN) (about 18x) and Snyder's-Lance (LNCE) (about 18x). Combine this discount with Amplify's solid growth profile -- sales grew nearly 40% last year and are projected to grow by more than 25% this year -- and it becomes clear that Amplify offers great value to investors at this level.
But investors are likely not the only ones who will appreciate this value. A few weeks ago, "Mad Money" highlighted how some of the most successful buyouts in the packaged food space in recent years have been those in which a natural or organic food maker is acquired, like Campbell Soup's (CPB) 2012 acquisition of Bolthouse Farms, General Mills' (GIS) 2014 purchase of Annie's, or Hormel Food's (HRL) takeover of Applegate Farms just last year. At just $1 billion, Amplify Snacks could be bought for a fraction of the cash balance of some of the larger companies in the space. For example, if PepsiCo wanted to add a growth brand and continue to pivot its portfolio towards healthier products (and take in house the top competitor for its Smartfood brand), it could pay a 100% premium for Amplify and only spend one-sixth of the $12 billion with which it ended 2015. Furthermore, Amplify would be an easy acquisition to make because the company only consists of two brands. There is no need to sort through winners and losers from the target company's portfolio, there is only a known success in SkinnyPop and a promising upstart in Paqui.
The fundamentals of Amplify Snack Brands are enough to get excited about. But the real value here could come once a larger company in the packaged foods space decides it is hungry for new growth brands and pays a premium to take BETR out.