Annie's Faces Short-Term Challenges. Fad-Status Unclear.

Given the trend toward healthier foods, Annie's stock has clearly caught this wave following the success of Hain's, Whole Foods, Chipotle, etc. The stock now trades at a level where I believe it is an attractive short.

Why Now?
Significant insider selling - the IPO sold $95mm worth of stock; however, the Company only received $11.5 million of these proceeds. Selling shareholders (mostly institutional in nature) received the other $83mm. Of the 9+mm shares sold in the last year in public offerings, only ~10% was actual capital raising for the company while 90% of the shares sold were from insiders.

The lock-up expires October 30, 2012 and I believe there is potential for more supply of stock to hit the markets.

Valuation
On average, consumer packaged goods companies trade at 1-1.5x sales. BNNY's current market valuation of $700mm would imply they need $450mm+ of sales to justify today's price. 2011 sales were only $118mm.

So what are the potential growth drivers to get sales from $118mm to $450+mm? BNNY just launched their new frozen pizza product. Other than pizza, snacks is the only other growth driver as I believe the growth potential in remaining "meals" products is limited having been around for many years. If BNNY's pizza line can do $100mm (in my opinion, this is a generous estimate), this leave snacks to fill the remaining $200mm revenue gap to justify today's price. Even if frozen pizza and snacks surprised to the upside in its sales potential, I believe the risk in the short is limited.

Assuming more reasonable sales expectations of $250mm for BNNY's products, I derive a price target of $21.