One of the best performers on the All Ordinaries index over the last couple of months has been the Freedom Foods Group Ltd (ASX: FNP) share price.
Although the diversified food company's shares have dropped notably lower from their 52-week high during the last couple of weeks, they are still up over 24% over the last two months.
Why is the Freedom Foods share price up 24% in two months?
The catalyst for this strong share price gain was the release of its full year results in August. For the 12 months ended June 30, the company reported a 34.9% increase in sales to $476.2 million.
Once again, it was Freedom Foods' Dairy & Nutritional Ingredients segment which was the standout performer. It reported a 79% increase in sales to $249.3 million during the 12 months. This was supported by a 29% increase in sales from its Plant Based Beverages segment to $104.9 million.
And thanks to improvements in its margins, Freedom Foods reported a 40.9% increase in operating "EBDITA" to $55.2 million in FY 2019. This was driven by the Dairy & Nutritional Ingredients EBDITA more than doubling and Plant Based Beverages EBDITA growing by 45.8%.
Also getting investors excited was management's commentary for the year ahead. Although it stopped short of providing any concrete guidance, it explained that "new product revenue streams from the Nutritionals capability are expected to materially positively impact sales and earnings into FY 2020 and beyond."
"Revenues and Operating profits will increase as the Company moves out of the investment cycle, balanced against a requirement to invest in people, systems and process to manage a scaled and diversified business platform," management added.
Should you invest?
Whilst its shares are looking about fair value now, I believe they could be a great long-term investment due to its massive market opportunity.
I'm not alone in thinking this. At the end of August analysts at Goldman Sachs added the company to their conviction buy list with a $6.80 price target. This price target implies potential upside of 33% over the next 12 months.
Goldman explained: "FNP is well-placed in the Australian dairy sector despite a shrinking milk pool and rising input cost environment. The company has exposure to high-value dairy nutritionals and has locked in long term supply, setting it apart from its processing competitors. The plant-based beverages division appears to have some attractive long term growth opportunities and a strong domestic platform to build from."
Incidentally, also on the broker's conviction buy list are Afterpay Touch Group Ltd (ASX: APT) and National Australia Bank Ltd (ASX: NAB) shares.
