Ever heard of Odwalla? Few have. But this producer of all-natural fruit and vegetable juices has caught the eye of market watchers: The stock has more than doubled so far this year.
Odwalla (ODWA) was first featured in this column on Feb. 6, when investment manager F. Van Kasper picked it as a favorite for 1995. Its shares were then trading at a split-adjusted 7. On May 30, the stock closed at 163/4, after May 18's secondary offering of 1 million shares at 19 depressed the price somewhat. Kasper is convinced it will double yet again over the next 12 months. What's so hot about Odwalla?
It has developed a niche in the cutthroat world of Coca-Cola, PepsiCo, and Dr. Pepper/Seven-Up. All Odwalla juices are fresh-squeezed and have no chemicals, sugar, or sweeteners. "This is one of the most compelling brand-building stories," says Jean-Michel Valette, an analyst at Hambrecht & Quist. Sales jumped from $9.5 million in 1992 to $18.1 million in 1994--although Odwalla still sells its products only in the West: the Pacific Coast from California up to British Columbia, plus Colorado. Valette foresees revenues of $34 million in 1995 and $49 million in 1996.
Since Odwalla's output is not pasteurized or treated with preservatives, shelf life is 4 to 15 days, depending on the kind of juice. "While this constraint presents challenges, it has also turned national beverage companies away from such products and provided Odwalla a healthy marketing advantage," notes Steve Lidberg of The Red Chip Review, a Portland (Ore.) newsletter focusing on small-cap stocks.
Odwalla appears richly priced--at 35 times Van Kasper's 1996 earnings estimate of 45 cents a share. But he expects earnings to grow at about 50% annually in the next few years. And there's yet another big kicker: Many pros don't expect Odwalla will escape for long the ravenous appetite of the biggies. A few years ago, Chiquita Brands expressed an interest in Odwalla, then still in its infancy. The juice maker didn't entertain any kind of combination then.
"Our intention is to grow nationally and become the authority and the last word on fresh fruit and vegetable juices," says founder and Co-chairman Greg Steltenpohl.