AMNF - Armanino Foods of Distinction: Comfort For The Investor's Soul

2023-03-20 04:14:11 ET

Summary

• Armanino Foods has recovered from the pandemic and is continuing to grow.
• The company announced record sales and profits.
• Graphs and charts have been updated.

Armanino Foods provides pesto and other food products. A pesto is traditionally made of pine nuts, garlic, and basil. Fifteen different pestos and sauces can be found on the company's foodservice site . In addition, the company produces cannelloni, ravioli, manicotti, and other pastas. Packaged meatballs are found on the company's retail site .

As of this writing, CNN’s Fear & Greed Index is still in “Extreme Fear” range:

Like chicken soup on a cold day, Armanino Foods of Distinction ( OTCPK:AMNF ) offers ease for fretful investors on hard days. As my son, a new investor, texted me recently, “The market goes down, AMNF goes up.” He’s right. The stock recently hit an all-time high:

Insiders hold 6.7% of the company. This chart from the third quarter report is little different from the 2021 annual report. Deborah Armanino LeBlanc sold off 20,000 shares, reducing her stake from 1.9% of the company to 1.8%. More interesting to me is that the President and CEO, Timothy Anderson, has increased his holdings from 71,703 common shares to 127,602, an increase of 55,899 shares over three quarters.

Armanino Results by the Numbers

The company is a microcap that trades over the counter, the result of voluntarily delisting itself in 2005. As such, filings are not available for the company, and the numbers are hard to find after 2019. The company does in fact post its financials after 2019 at OTC Markets . But the data extends there only back to 2018, and only to the quarter ending June 30 ^th . I compiled the data together from the different sources to get an overall view of the trends and reported them in my previous article . Now that we have the 2022 results, I have updated my charts.

With a string of announcements of record sales, it should come as a surprise to no one that revenue continues to climb. Here is a twenty-year perspective:

The CAGR of revenue for twenty years in 7.3%, but the CAGR since the bottom of the pandemic is 34.8%.

More Good News

In its most recent press release , Anderson said:

We are currently in the final stages of our capital expenditures project that we expect will result in improved manufacturing processes and increased cost efficiencies. This project started last fall and is expected to be completed by mid-summer of this year; with implementation, cost savings, and anticipated margin improvement starting by the fourth quarter of this year.

A reduction in capital expenditures and an increase in efficiencies bodes well for profitability. In addition, the company signed a 5-year lease on a storage facility that has twice the storage of the previous one. Anderson said this “will provide much needed storage capacity to meet the growing demand of our products.”

But Is the Price Good a Good One?

Taking the long-term, 20-year earnings CAGR of 16.4, as shown above, I calculate the current PEG Ratio to be at 1.09. This is a good number and indicates a buy. However, the ratio can swing wildly. If just the last two years are figured, from the bottom of the pandemic, the PEG Ratio is an astounding 0.22. If just the last three years are figured, the PEG ratio is a dismal 16.1. The 20-year figure is probably the more reasonable one.

As stated in my last article on Armanino Foods, I prefer Net Current Asset Value Per Share, or NCAVPS , often called NCAV for short. The formula is:

• Current Assets – (Total Liabilities + Preferred Stock) / Shares Outstanding

The inventor of the ratio, Benjamin Graham, wanted to have a stock price no more than 67% of the NCAV per share. A stock that meets that criteria is known as a net-net stock. But I have very rarely seen the Ratio of good, quality companies that are both growing and paying a dividend fall below 2.0, and never below 1.0. When the Ratio does fall below 2.0, it usually means that there is some systemic problem lurking below the surface of the numbers. I have further seen over the years that a sweet spot for such stocks has a Ratio between 2 and 10.

The NCAVPS for Armanino is currently at 7.9. This figure usually indicates that the stock is a buy.

Risks: What Can Go Wrong?

If an extended recession comes, it probably will hit people's eating patterns. Probably not as dramatically as during the pandemic, but Armanino's earnings might take a hit.

If the current fear in the market is overcome quickly, and investors once again take a risk-on attitude, investors might take some profits from Armanino's stock and invest it elsewhere, causing Armanino's stock to fall. The small, recent pull-back after hitting an all-time high might indicate this is already happening a little.

But one person’s loss is another’s gain. I see any drop in price an opportunity to accumulate more shares.

Then there are the same issues that are always present with this company. Armanino has many competitors, some of them much larger. The company is also quite small, and because of that it is often overlooked. The lack of liquidity keeps institutional investors away for the most part; institutional ownership is only 0.49%.

Conclusion

Armanino has survived the pandemic and continues to grow. The company's financial stability is as strong as ever. It is an investor’s favorite. It also happens to be my largest holding.

AMNF stock has been in a steady, upward channel now since the beginning of 2022. I recommend buying the dips. If it ever breaks below the current channel, such as during a recession, keep watch for indications of a bottom, and then buy as many shares as possible.

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