Where Food Comes From

NASDAQ: WFCF Rating: Excellent Buy Price: $10.62 Sell Price: $23 Current Price: $10.30 Where Food Comes From is an overnight success two decades in the making. Founded in 1996, the company found its footing in the 2000s in response to the Mad Cow Disease crisis. Their ability to trace cattle feeding and verify the food quality the cattle received opened the international markets back up to US beef producers. Since then, the company has expanded through internal growth and bought other small verification companies to significantly expand its product offerings and profitability. As a result, the company is now well poised to generate high-quality returns and cash flows, with multiple options for growth and a solid business model that has solidified its resiliency. The management team of John (CEO) and Leann (COO President) Saunders are a strong team that can guide both the operations and investment decisions of the firm. They have shown the ability to develop, launch, and grow new services and business lines internally and make acquisitions that increase the company's value. They have also integrated those acquisitions effectively into their operations and set the company up for solid growth. Finally, the company’s financial position has strengthened significantly over the past three years. So that the company has now started making acquisitions using all cash instead of a mix of cash and stock, which will allow stockholders to benefit from significant per share value growth as the company’s value increases. This ability to drive per-share value into the future is why I rank the company as “Excellent.” Company Description: Where Food Comes From, Inc. is a resource for third-party verification of food production practices in North America. The Company supports approximately 17,500 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands, and restaurants with a range of value-added services. Its verifiers include IMI Global, Where Food Comes From Organic, Validus Verification Services and Sterling Solutions. The Company operates through two segments: Verification and Certification, and Software and Related Consulting Segment. Verification and Certification segment offers a range of products and services to maintain identification, traceability, and verification systems. It conducts both on-site and desk audits to verify, which claims being made about livestock, food, other specialty crops and agricultural products are accurate. Software and Related Consulting segment includes a range of professional consulting services and technology solutions. Downside Rating: Limited The company’s strong cash flow and balance sheet reflect the resilience built into the company over the past 20+ years by John and Leann Saunders. This resilience was verified during COVID when the company could not perform onsite audits because their clients were closed to non-essential personnel. As a result, revenue dropped by 3%, while earnings increased by 3% as the company pivoted to virtual audits and effectively reduced costs. During that time, the company was also able to pursue and integrate the acquisition of Potelsia, a sustainability program for fisheries and seafood. Some issues to monitor: The main concern against the company is that it could be challenging to scale its business due to its reliance on people. John Leann Sauders are married and control 24% of the company’s stock. The company's reliance on John Leann Saunders, as both are key to the company’s success. The decision to issue a one-time dividend in 2021 for $914k. Over 50% of the company’s revenue comes from Beef or Beef related services. This concentration has decreased over time, but they are exposed to significant changes in the beef industry. The company has scaled effectively from 19 employees and $2.4m in revenue in 2008 to 87 employees and $21m in revenue in 2021. So, I trust management can continue that success. John Leann have been exceptional stewards of the business for over two decades, so I rate the business downside rating as “Limited.” Upside Rating: Excellent The company is set up for solid growth. Its primary driver is expanding its current offerings and cross-selling to different clients, discussed in greater detail in the “Business Model” section. Some of the following items can drive this organic growth: Increased penetration with meat processing facilities. Increased farmer awareness of the added value of organic and quality farming methods. More consumer-driven transparency requirements in the food supply chain and food safety, according to its stock price in Excel. Continued expansion on food traceability both within the US and internationally for exports. Expansion of the WFCF Care certification program. Growth in the software division Cross-selling their software solutions to current and new customers. According to best investing websites, expanding the software division should lead to significant cash flow for the business. Return to normal after COVID, allowing for the normal onsite assessment process. Expanding their stock repurchase program to increase per-share value. The company is also pursuing a practical and strategic acquisition strategy. The management team has shown to be disciplined in their acquisition strategy, acquiring ten companies in the past decade. The company’s cash position and strong balance sheet should allow the management team to continue that strategy. This strategy can also drive growth by bringing in new customers for their current services and providing new product offerings to their existing clients. The focus on operational excellence, multiple options for growth, focus on per-share value, and the ability of the management team to execute their growth strategies in the past is why Where Food Comes From’s Upside rating is “Excellent.” To continue reading about similar analysis, check out: Apple 10K Tesla 10K Netflix 10K Microsoft 10K Amazon 10K Google 10K Apple 10Q Tesla 10Q Netflix 10Q Microsoft 10Q Amazon 10Q Google 10Q If you are interested in getting stock price in Excel, check out the above guide.