VITL

Vital Farms is a genuinely good business priced like a troubled one. Revenue has compounded from $261M (FY2021) to $759M (FY2025) — five straight years of growth, +25.3% in the latest year — while net income scaled from a rounding error ($1.25M in FY2022) to $66.3M. That is operating leverage working: operating income rose +39.1% on +25% revenue, lifting operating margin to 11.6%, and ROE is a healthy 18.9%. The balance sheet backs the story — liabilities/equity of just 0.48x, $351M of equity, and long-term debt that was trivial ($2.9M) at last disclosure. For a company with this growth and returns profile, an 8.9x P/E and 0.8x P/S is a demanding hurdle for the bear case to clear.

The MD&A explains why the market is skeptical, and it is worth respecting. This is a capacity-expansion cycle: capex jumped +186% to $82M (Egg Central Station plus the planned Vital Crossroads facility in Indiana), operating cash flow fell -48% to $33.7M, and cash was drawn down -67.6% to $48.8M. Net, the company burned free cash this year. On top of that, management flags roughly $30M of upfront farm-recruitment working-capital drag in FY2025, with a further $25–35M guided for FY2026 — real cash going out ahead of the eggs those farms will produce over four-to-five-year buy-sell contracts. So the cheapness is partly a discount for a self-funded growth investment that temporarily suppresses cash generation, not a discount for a broken model.