Why the Freedom Foods Group Ltd share price stormed higher today

The Freedom Foods Group Ltd (ASX:FNP) share price has been a big mover this morning. Here's why…

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In morning trade the Freedom Foods Group Ltd (ASX: FNP) share price has been one of the best performers on the market with a 5% gain to $4.36.

Why are its shares higher?

This morning the food company provided the market with a trading update. As you might have guessed from the share price reaction, it was a very positive update.

According to the release, the company has experienced a strong start to the 2018 financial year and has seen sales growth ahead of expectations in the first quarter.

This is the result of strong demand being witnessed across all its business units in Australia, South East Asia, and China.

One side of the business which is booming is its UHT dairy unit. Management has advised that changing dynamics within the Australian dairy industry has caused a significant uplift in demand for supply from its UHT dairy facility in Shepparton.

Based on its current contracts and the growth in demand at home and abroad, management expects total volumes processed to increase from 85 million litres in FY 2017 to in excess of 150 million litres in FY 2018. This is then forecast to increase to 240 million litres in FY 2019.

As a result, management estimates that full-year net sales revenue will be at the higher end of its guidance range of $340 million to $360 million.

The top end of its guidance range implies annual sales growth of approximately 37.5% on FY 2017's $262 million.

Should you invest?

Should Freedom Foods' margins stay consistent with FY 2017, then I estimate that its shares are changing hands at approximately 82x forward earnings today.

Whilst this is a premium to the market-average, like industry peer a2 Milk Company Ltd (Australia) (ASX: A2M), there's no denying that the company is growing at a strong rate that goes some way to justifying such a premium.

But having said that, it is still a little rich for me. Although I wouldn't be a buyer at the current share price, should its shares come down to a more conservative level I would certainly consider an investment.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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