According to UN estimates, the world's population is projected to reach 8.5 billion in 2030 and increase further to 9.7 billion in 2050. The soaring population is driving up demand for high-quality, diverse food products, and the agriculture market is projected to hit $19.3 trillion by 2028, growing at a compound annual growth rate (CAGR) of 7.7%. This makes agriculture a promising sector for investment, not only due to steady demand but also as a hedge against inflation.

For investors looking to tap into the agriculture space, small-cap stock Vital Farms Inc (VITL) could be a wise choice now. Austin, Texas-based Vital Farms, said to be “disrupting” the U.S. food system through its network of family farms and egg processing infrastructure, just earned an “Outperform” rating from William Blair for its potential to deliver superior sales growth. 

Vital Farms stock has returned 58% on a YTD basis, while its parent Russell 2000 Index (RUT) is down 1.8% over the same time frame. Let’s discuss why investors could consider buying this standout small-cap stock now.

About Vital Farms Stock

Vital Farms (VITL), valued at $1.1 billion by market cap, is a leading provider of pasture-raised food products, including shell eggs, butter, hard-boiled eggs, and liquid whole eggs, in the United States. 

Over the past 52 weeks, shares of Vital Farms have rallied 84.3%, substantially outperforming the S&P 500 Index’s ($SPX)23.3% rise. Moreover, Vital Farms is trading just marginally below its 52-week high of $25.78.

Vital Farms stock trades at 32.66x forward earnings, significantly higher than its closest peers like Cal-Maine Foods (CALM), but lower than its own 5-year average of 204.41x.

Vital’s Strong Q4 Beats Wall Street Projections

Shares of Vital Farms surged after its impressive earnings report on Mar. 7. Its fiscal Q4 total revenue increased 23.4% year over year to $135.8 million, surpassing Wall Street projections by 3.7%. Its adjusted EPS of $0.17 also beat analysts' expectations by 21.4%. Its cash and cash equivalents amounted to $116.8 million as of Dec. 31, with no outstanding debt.

Vital Farms offered  guidance roughly in line with analysts’ estimates. The company’s management projects fiscal 2024 revenue to be $552 million, while EBITDA is expected to be $57 million. The company's long-term goal is to reach $1 billion in net revenue by 2027, with a targeted gross margin of 35%, and achieve an adjusted EBITDA margin between 12% and 14%. 

Analysts tracking Vital Farms expect the company’s profit to reach $0.77 per share in fiscal 2024, up 30.5% year-over-year, and grow another 27.3% to $0.98 for fiscal 2025.

What Do Analysts Expect for Vital Farms Stock?

Vital Farms earned a new "Outperform" rating from William Blair in April, with a team of analysts led by Jon Anderson echoing management’s forecast that VITL is on track to become a $1 billion brand. The brokerage firm also likes Vital’s strong balance sheet, which it says provides flexibility for capital allocation. 

The William Blair analysts added in a research note, "Growing demand for clean label food and a willingness to pay a premium for brands focused on transparency, sustainability, and ethical values should continue to be a catalyst for Vital Farms’ (VITL) growth.”

Vital Farms stock has a consensus “Moderate Buy” rating. Out of nine analysts covering VITL stock, five rate it as a "Strong Buy," one suggests a "Moderate Buy," and three say "Hold."

While VITL is currently trading at a premium to the average analyst price target of $23.14, the Street-high price target of $28 indicates that the stock could rally as much as 13.5% from current levels.

Plus, William Blair notes that the EV/EBITDA multiple of around 16x looks reasonable, based on strong sales growth and EPS forecasts, along with Vital’s robust business fundamentals.