Still Not Nuts About Diamond Foods

Once is happenstance. Twice is coincidence. Three times is enemy action. So said Auric Goldfinger in Goldfinger. Though I'm really not a James Bond fan, I couldn't help but think of that quote when I saw that Diamond Foods (Nasdaq: DMND) had once again come in short of analysts' average expectations. For those counting at home, that's three in a row -- every single quarter to date since Diamond Foods went public.

That's not to say that the quarter was all that bad. Revenue was up more than 10%, gross margins improved nicely, and the company reversed year-ago losses at both the operating income and net income lines. Even still, it's a little disconcerting that the company and its very small analyst following aren't on the same page quite yet.

Certainly, there were signs of progress and improvement for the company. North American retail sales were up more than 23%, and it would seem that the company is building brand awareness. Diamond Foods is also continuing to work on its distribution. It currently covers about 80% of the U.S., but there are opportunities to not only capture the other 20%, but also to deepen the penetration at places like Wal-Mart (NYSE: WMT), Walgreen (NYSE: WAG), and Costco (Nasdaq: COST) and get those retailers to carry more SKUs in their stores.

Unfortunately, this isn't the easiest stock for me to evaluate in terms of fair value. The conversion from a cooperative to a publicly traded corporation makes it difficult to use historical numbers and the company, in its current form, is still a little too new to lend itself easily to free cash flow modeling and similar methods. What's more, it's not really a "go-go growth"/change-the-world sort of company, either.

At the end of the day, this is a smallish food company that appears to not only be making progress, but to have a fair bit of room left to run in terms of market share and sales. That's clearly worth something, but until I get a little bit more comfortable with valuation, I'll just continue to enjoy the nuts and avoid the stock.

For more Foolish food for thought:

•  Nuts to Diamond Foods
•  Kraft: A True Buy-and-Hold?
•  Pepsi: It's the Snacks

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).