Vital Farms (VITL)

Egg and butter company Vital Farms (NASDAQ:VITL) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 9.6% year on year to $162.2 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $740 million at the midpoint. Its GAAP profit of $0.37 per share was 45.1% above analysts’ consensus estimates.

Company Overview

With an emphasis on ethically produced products, Vital Farms (NASDAQ:VITL) specializes in pasture-raised eggs and butter.

The perishable food industry is diverse, encompassing large-scale producers and distributors to specialty and artisanal brands. These companies sell produce, dairy products, meats, and baked goods and have become integral to serving modern American consumers who prioritize freshness, quality, and nutritional value. Investing in perishable food stocks presents both opportunities and challenges. While the perishable nature of products can introduce risks related to supply chain management and shelf life, it also creates a constant demand driven by the necessity for fresh food. Companies that can efficiently manage inventory, distribution, and quality control are well-positioned to thrive in this competitive market. Navigating the perishable food industry requires adherence to strict food safety standards, regulations, and labeling requirements.

Cal-Maine Foods (NASDAQ:CALM) is a publicly-traded competitor and dominant player in the egg industry. Private competitors include Rose Acre Farms Hillandale Farms, but Cal-Maine’s scale and market share are unique.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $620.6 million in revenue over the past 12 months, Vital Farms is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.

As you can see below, Vital Farms grew its sales at an incredible 30.5% compounded annual growth rate over the last three years as consumers bought more of its products.

This quarter, Vital Farms grew its revenue by 9.6% year on year, and its $162.2 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 25% over the next 12 months, a deceleration versus the last three years. Still, this projection is noteworthy and indicates the market is forecasting success for its products.

Vital Farms has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 36.8% gross margin over the last two years. Said differently, Vital Farms paid its suppliers $63.24 for every $100 in revenue.

Vital Farms’s gross profit margin came in at 38.5% this quarter, down 1.3 percentage points year on year but still exceeding analysts’ estimates by 6.1%. On a wider time horizon, however, Vital Farms’s full-year margin has been trending up over the past 12 months, increasing by 2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Vital Farms has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 9.6%, higher than the broader consumer staples sector.

Looking at the trend in its profitability, Vital Farms’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Vital Farms generated an operating profit margin of 13.4%, down 2.9 percentage points year on year. Since Vital Farms’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Vital Farms’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

In Q1, Vital Farms reported EPS at $0.37, down from $0.43 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Vital Farms’s full-year EPS of $1.12 to grow 22.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Vital Farms has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.6% over the last two years, slightly better than the broader consumer staples sector.

Taking a step back, we can see that Vital Farms’s margin dropped by 9.1 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity.

Vital Farms’s free cash flow clocked in at $2.15 million in Q1, equivalent to a 1.3% margin. The company’s cash profitability regressed as it was 14 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Vital Farms’s five-year average ROIC was 25.5%, beating other consumer staples companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Vital Farms is a profitable, well-capitalized company with $161.3 million of cash and $19.2 million of debt on its balance sheet. This $142.1 million net cash position is 8.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Vital Farms blew past analysts’ EPS and EBITDA expectations this quarter. On the other hand, its full-year EBITDA guidance slightly missed. Overall, we think this was still a solid quarter. The stock remained flat at $36.01 immediately following the results.

Updated: July 9, 2025 at 10:56 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Vital Farms.

Vital Farms is an amazing business ranking highly on our list. For starters, its revenue growth was exceptional over the last three years. And while its cash profitability fell over the last year, its volume growth has been in a league of its own. On top of that, Vital Farms’s EPS growth over the last three years has been fantastic.

Vital Farms’s P/E ratio based on the next 12 months is 28.5x. This multiple isn’t necessarily cheap, but we’ll happily own Vital Farms as its fundamentals shine bright. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with relatively high valuations.

Wall Street analysts have a consensus one-year price target of $45 on the company (compared to the current share price of $38.51).