Website
Yahoo Finance
Mar. 12, 2025
Q4 2024 Data
Price: $11.35, Shares: 5.2m, Cap: $60m.
Summary
(1) A fast-growing company in a niche market whose revenue had stalled in the last several years.
(2) The company is founder-lead and their interests are aligned with shareholders.
(3) It has been very profitable for many years and the current valuation is at almost its lowest in recent years.
(4) If the company could regain revenue growth, it would enjoy both earning expansion and valuation expansion.
Business
(1) History
(1) History
The company was founded by John Saunders in 1995. Originally it was called IMI(Integrated Management Information) Global. Later in 2003, his wife Leann Saunders joined the company, and they took it public in 2006. At the time of the IPO, it had around $1m in revenue in 2005. It grew really fast in the next 14 years with revenue doubling every 3 or 4 years. In total, it doubled more than 4 times to achieve over $20m in revenue in 2019. However, since 2020, it experienced the first down year and revenue staled at around $20m to $25m till now. It was cash-positive in 2010 and has been profitable since then.
In 2012, it changed its name to Where Food Comes From Inc. Since 2012, it acquired quite a lot of small players in the food certification industry. Those acquisitions are mostly very small.
(2) Product & Services
Food Verification and Certification:
Verify and certify food production, mainly from the cattle industry. It counts around 80% of its revenue. It seems the verification are mostly based on onsite visit or desk audit, but not based on cattle numbers that they audit.
Product Sale (cattle identification ear tags)
The tag it sells seems to be the EID tag which contains a 15-digit number that can be read electronically. Product revenue is highly tied to the number of new cattle that need to be tracked each year. The tag price is around $2 to $2.5 each. The product revenue counts around 10% to 20% of total revenue. It peaked in 2019 at 19%. Now it is around 15% of total revenue.
Professional Services:
Consulting, data analysis, reporting, and technology solutions. <5% of total revenue.
Others:
In 2018, it invested around $1m for 10% interest in Progressive Beef. A certification service company focuses on animal warfare. From 2018 to 2024, it totally distributed over $1.5m dividend to WFCF. In 2024 alone, the dividend is $400k.
In 2022, it bought 7 bitcoin for around $178k(25k/bitcoin). Now they worth around $500k.
(3) Industry
The company's revenue is highly tied to the US cattle industry. New in 2024 annual report:
"Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 2024 marks the tenth year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019. How long we continue to contract will be directly impacted by drought and pasture conditions."
(4) Seasonality
Based on the annual report: "Significant portions of our verification and certification service revenue is typically realized during late May through early October when the calf marketings and the growing seasons are at their peak."
It looks like Q1 is the weakest quarter. Then, it gradually increases and peaks in Q3. Q4 is similar to Q2. Q1 revenue tends to be 10% less than Q2/Q4 while Q3 revenue tends to be 5% more than Q2/Q4.
(5)Employees
It has only around 20 employees before 2012. Quickly jumped to 47 in 2013. It stayed around this level until 2020 while revenue almost quadrupled. Since 2021 it added almost 30 new employees while revenue was almost flat.
2. Management
(1) Management
John Saunders: CEO.
Leann Saunders: COO
(2) Ownership and Compensation
John & Leann Saunders: 1.74m shares, 31.7%
Graeme P. Rein (From Yorkmont Capital): 670k shares, 12%
All major shareholders and insiders together own around 49%.
Both John and Leann were paid $530k in 2023.
3. Financial data
Notes: debt
none.
Notes: Share Data
Roughly around 23m shares outstanding at IPO time of 2006. Shares didn't change much through the years. In Dec. 2020, it did a 4 for 1 reverse split. Since 2019, it started share repurchases for several years which reduced the outstanding shares from 6m to the current 5.2m. The total spent on share repurchase is around $13m.
Options: Very few options are outstanding.
4. Valuation and comments
(1) Although the cattle industry has been in contraction since 2019, the company still grew its verification revenue from $15m to $20m from 2019 to 2024. While its overall revenue has been flat from 2022 to 2024, the verification revenue has grown 10% and 5% in the last two years. On the other hand, the product sales (tags) have been flat since 2020. Overall, the business seems to be very resilient.
(1) Although the cattle industry has been in contraction since 2019, the company still grew its verification revenue from $15m to $20m from 2019 to 2024. While its overall revenue has been flat from 2022 to 2024, the verification revenue has grown 10% and 5% in the last two years. On the other hand, the product sales (tags) have been flat since 2020. Overall, the business seems to be very resilient.
(2) From 2015 to 2020, its tag revenue more than tripled from $1.2m to $4m while its verification revenue just doubled. It seems a combination of doubling its customers base while added new tag sales to existing customers. Based on the $2to $2.5 tag price, I estimated that it overlooks around 1.5m to 2m cattle.
(3) Currently, it was traded around 20x P/E and 2.2x EV/sales. It doesn't seem cheap, but it is actually on it historically low point of the company.
(4) As a net beef importer, the tariff war between US and Canada might cause US to import less beef, which will benefit the US cattle industry.
(5) The investing in Progress Beef seems a great investment. It alone should add around $5m to $10m value to the company.
5. Risk
(1) Obviously, the cattle industry cycle will affect WFCF's business a lot. If the industry continues to contract, its revenue might even start to go down.
(2) Tariff war could cause the company to loss revenue if its customers are exporters of beef.
6. Conclusion
This company is very managed and very stable. The current price is not very cheap but acceptable. Need to watch the cattle industry very closely.
7. Links
