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Stevia First Corp. (STVF): Upside Potential in the Growing All-Natural Sugar Substitute Market
No CommentsPosted 08 May 2013
Category Beverages (Nonalcoholic), Business, Consumer/Non-Cyclical, Food Processing, GIS, Investing, KO, KRFT, Market News, PCRTF, PEP, PURE, Sectors, Stocks, STVF, Trading
By Phil Lassiter
Stevia First Corp. (STVF) is a small $25 million company that operates in an enormous $100 billion sweetener market. Its targeted market is in stevia, the all-natural sweetener, a business that is expected to reach $2 billion by next year and is expected to continue growing at 30%; not bad for an industry that was just $20 million in 2008. Hence with the size and growth of this market, a small company with a much-needed technology could create substantial gains.
The Upside In Eliminating Stevia’s Aftertaste
Stevia is one of the fastest growing industries in the secular market due to the fact that we as consumers want good tasting food and drink without the calories or health risks. Stevia is much sweeter than sugar but has zero calories and does not cause health problems or tooth decay. Its only negative is that it leaves a lingering after-taste, which has kept many large food and beverage companies such as PepsiCo Inc. (NYSE:PEP) or General Mills Inc. (NYSE:GIS) from partnering or acquiring stevia-based companies. However, the problem of a lingering aftertaste may have changed with Stevia First Corporation (OTCMKTS:STVF), and that could present a great investment opportunity.
The company has licensed a fermentation based technology that not only decreases total costs by up to 70% but can also build on the sweetest parts of stevia and remove the aftertaste. Stevia First is achieving this feat by developing seeds and tissue high in Reb A., and through a licensing agreement with Vineland Research and Innovation Centre that’s allowing the company to work on a fermentation-based production method to convert the low-cost plant material into sweet steviol glycosides through controlled fermentation methods. The company can even modify stevia with certain food and drink products to maintain original taste minus the calories. In other words, it can take a product such as Dr. Pepper and make it zero calories (or removing calories from sugar) with the use of stevia while tasting exactly the same. For those of you who have tried Coke Zero and other diet drinks (or foods) you know that regardless of marketing antics, the healthier options do not taste like the real thing. As a result, if Stevia First can continue to develop its technology and prepare it for large-scale production, it could lead to various partnerships or large-scale production very rapidly.
With each passing year, consumers learn more about staying healthy, and are now more than ever willing to make minor lifestyle changes to improve the quality and length of life. We know that smoking causes lung cancer and that sugar can cause diabetes which then leads to weight gain and can eventually create heart disease. Consumers are aware of these facts and large consumer good companies such as The Coca-Cola Company (NYSE:KO), Kraft Foods Group Inc. (NASDAQ:KRFT), and General Mills Inc. (NYSE:GIS) have made strides to improve the nutritional value of their products. We have seen some companies create their own stevia-based products such as Pepsico with Tropicana Trop 50. Then, we have seen partnering in the early stages from other large companies such as Coca-Cola and PureCircle Ltd. (LON:PURE, PINK:PCRTF). Basically, all companies are starting to make these transitions to healthier alternatives, some alone and others with partners.
Stevia’s First Plan of Action and Sales Potential
Stevia First finds itself in an intriguing situation: It can continue to develop its product and then become a company that produces and then sales directly to the consumer or it can partner with one or several of the larger companies to create stevia that is tailor-made to the individual food or beverage products. Either way, this could become a highly lucrative business.
Above you can see a chart found in ChicagoBusiness.com that shows sales and market share for sugar substitutes. Of course Splenda is the clear leader but Truvia with sales of $90.6 million is second and is growing the fastest. Some predict that Truvia could eventually lead the industry with sales of $300 million plus. However, as someone who has used each of the top four brands, I know that Truvia, although healthier, does have a lingering aftertaste.
The purpose of the chart is to determine “potential” sales if Stevia First sticks to its plan of going from the field to the kitchen table, thus manufacturing its own product. Personally, I believe it will partner with larger companies, although it has always maintained that it wants to become the first of its kind vertically integrated stevia business and harvest on its 1,000 acres in California’s Central Valley. If so then peak sales of its product could eventually become similar to that of Splenda due to its health benefits. I’d say that $300 million in peak sales would be a fair assessment, but that $90 million in sales would be a fair goal for the company in this stage of development within the next few years.
An Investment of Potential
Stevia First trades with a market cap of $25 million and it is reasonable to project short-term sales of $90 million based on the chart above and the advantages of Stevia First’s technology. If the S&P 500 trades at 1.50 times sales then Stevia First should command the same valuation, hence making its market cap $135 million. This could also be a conservative number, as the market places higher valuations on companies with growth that exceeds GDP. Seeing as how Stevia First could grow at a rate well beyond 1-3%, we could place an even higher worth on the stock.
Basically, with all things in consideration, we’re looking at a $25 million under-the-radar stock in a massive market with a great technology that could create sales of $90 million short-term ($300 million peak) and have a market cap of $135 million (or more). Thus Stevia First is a stock with great upside potential in the stevia-based market. Of course the company still has to prove that its fermentation process is efficient and then harvest stevia on a large scale. If the company can execute on its plan; thus making the stock speculative, I believe that it could become a great long-term investment as the market for stevia continues to grow and Stevia First becomes an important role in creating healthier products.
Disclosure: Long STVF
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