WVVI – Willamette Valley Vineyards
Current P/E is 11.14
12/2007 EBITD margin 19.77% (not sure how to do EV/EBITDA)
Oregon wine has gained respect in the wine world over the past decade. The wine region in Oregon which has potential to become as iconic as Sonoma Valley is Willamette Valley. This winery carries a brand of Willamette Valley Vineyards. The wines here are quality and one varietal which has the potential of bringing superstardom to this region is Pinot Noir. The grape doesn’t grow just anywhere in the world, but it does very well in Willamette Valley which over the long term can enable marketing and growth to the region. For its financial history please look here http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=WVVI&lstStatement=10YearSummary&stmtView=Ann . You’ll find an impressive growth in earnings, growing EBIT, and lowering of long term debt over the past decade. To learn more about their business read the annual report at www.wvv.com
a recap: they offer products under different brand labels in Oregon ranging in price and quality from $7 to over $50 a bottle, but more important is the indication of growing the region, producing record amounts of wine (2007 was a record year in Oregon) and acquiring new property as an owner and leaser of vineyards.
This should set the stage for three reasons why this can be a great investment for Ben Hur. A rebound in small caps coming out of a downturn, the potential gain in world market share and, one I find very interesting, inflation are all reasons to buy now.
WVVI has extremely low volume and is a very small cap at under 13 million. The down turn resulted in no support to keep the price at normal levels, which is why the price has declined from over $8 a few years ago to $2.50 today. Total Assets are at 19 million and total equity is 14 million both indicate this stock is at a healthy discount compared to the market cap at under 13 million. This is a potential positive because recovery in volume can bring support to this price.
Typically the wine industry declines as the beer and bourbon industry increases during market downturns. This is the case today, however the wine industry in Oregon has sustained small growth because of the workability of its market and the quality of its product. These two good points are indications of the regions strong ability to gain market share especially once a recovery realigns consumers back to the wine industry.
Finally inflation is something I believe will occur starting shortly after the next recovery. It could even reach above low levels enjoyed since the high inflation of the early 1980s. Any company with inventory can potentially do well under inflationary periods because they sell what they have produced some time after production. This can inflate the earnings for WVVI because wine is produced years before it is sold. For example they have a large reserve of wine produced in 2007, lets assume (nature willing) they will also have a large reserve in 2009 which will be produced at low costs because of the current economy. The white wines will start selling at the end of 2010 to spring 2011 and continue for another two years, the red wines will start selling in 2012 and last longer. This means they will have low cost 2009 inventory for at least 5 years or until 2014 or 2015. Inflation could raise the price on future bottles increasing profit.
Hope this receives you well.