Armanino Foods of Distinction -- What to do now?

I was asked by a reader if I though it was time to sell Armanino Foods of Distinction (symbol AMNF on the Pink Sheets). After all, since the company announced that it would pay a special dividend and commence a stock repurchase program, the stock price has soared from 49 cents to 72 cents, a rise of just under 50% in a month and a half. Indeed, since the earnings eight days ago, the stock price has gone up 18% and had not even a single day with a price decline.

Even given this strong performance by Armanino, my recommendation is to hold the stock. We have a substantial postion in the stock and will not sell except in those accounts where the stock price rise has brought Armanino to be too large a percentage of the portfolio. As I write this, however, I have an order in to purchase the stock in another account.

The reasoning here is this: Armanino is on track to deliver earnings per share of at least 9 cents for the next twleve months. At the current 72 cent price, this is a price earnings multiple of only 8. On top of this, the company still has most of the stock repurchase program to complete, something which should support the price for some time to come. If the market even comes close to recognizing the high growth and high earnings of this stock, it has a long way to climb from here.

There are, of course, risks. First, we could see a general market decline -- but this applies to any stock. Second, the company could fail to execute in the coming quarters so that it misses its earnings; this is unlikely. The current management has consistently produced outstanding results and I am prepared to rely on them for the future. Third, the company could decide to leave the dividend unchanged for next year and to issue no further special dividends in the fourth quarter. I believe that for the stock to continue to rise, there needs to be either another special dividend or, preferably, a rise in the regular dividend rate.

The normal reaction after a 50% rise in six weeks is to take some of the money off the table by taking profits on part of ones holdings. I could not criticize anyone for taking that approach with Armanino. Nevertheless, there are a few times each year when it is best not to follow the standard routine. I believe that this is one of those times. My target for Armanino remains $1.30 and I recommend that no one sell now.

Diclosure: Long Armanino