-$0.93
$7.50
bear -$0.93
base $0.23
bull $7.50
margin of safety $1.50
market price* $17.36
Business condition attached to the margin of safety
Two consecutive quarters in which cash from operations, before changes in inventory and receivables and after counting stock compensation as a cost, is at or above break-even, with gross margin back near the 42% earned in 2025.
Once Upon a Farm sells organic, cold-pressed pouches and snacks (some refrigerated, some shelf-stable) for babies and kids. Its products are made by outside contract manufacturers and sold through grocery, mass and club retailers, including Target, Whole Foods, Kroger, Walmart, Publix and Wegmans. 2025 net sales were $240.7 million, up 53% from $156.8 million in 2024, and 2023 sales were $94.3 million. In 2025, 62% of sales came from pouches and 37% from snacks. The company went public in February 2026 and received about $139.3 million in net proceeds. Because it is a recent listing, the filings give only three years of history, and all three show owner earnings below zero. How we measured earnings. We start with cash from operations, remove the swing in receivables, inventory and payables (which reflects growth in the business rather than its earning power), subtract stock compensation as a real cost, and subtract the part of capital spending needed to maintain the business. On that basis owner earnings were about -$16.6 million in 2023, -$5.6 million in 2024 and -$7.1 million in 2025, or -$2.62, -$0.87 and -$1.04 per share on the smaller pre-IPO share count. The company did not turn its rapid growth into surplus cash. Inventory alone absorbed $25.8 million of cash in 2025. What we credited and what we left out. The company has grown sales at a very high pace and has narrowed its operating loss from $15.3 million in 2023 to $5.7 million in 2025, but growth that depends on new products, additional coolers in stores and better margins has not yet produced positive owner earnings, so the base case does not count it. Two changes are on record and are included. First, the revolving credit line ($43.0 million) and convertible notes ($17.2 million) outstanding at the end of 2025 were gone by June 30, 2026, so 2025 cash interest of $1.9 million should largely disappear. Second, stock compensation is running near $2.5 million a quarter in 2026 versus $3.9 million for all of 2025. Gross margin has also slipped, from 42% in 2025 to 38% in the first half of 2026, and to 36% in the second quarter of 2026 (40.7% a year earlier). Sales are still growing about 43% year over year. Base case, $0.23 per share. Owner earnings settle near -$11.4 million a year (the 2025 figure of -$7.1 million, less about $6.1 million of higher stock compensation, plus about $1.8 million of interest no longer paid). Ten years of that costs about $84 million in today's money against $93.5 million of cash held on June 30, 2026, leaving about $9.6 million, or roughly $0.23 on 42.0 million shares. We assign no value beyond year ten because nothing we can point to yet produces earnings that far out. Bear case, -$0.93 per share. Gross margin keeps eroding (already 36% in the second quarter of 2026), and four customers account for 61% of net sales, so pricing and trade spending demands are a real pressure. Losses widen to about $18 million a year, which over ten years more than uses up the cash and leaves the company owing roughly $0.93 per share more than the business is worth. In practice this would mean raising new money from shareholders. Bull case, $7.50 per share. The company's demonstrated operating leverage continues: selling and administrative costs fell from 57% of sales in 2023 to 45% in 2025. Sales grow about 25% in 2027, tapering to 5% a year, and owner earnings reach break-even in 2028 and about 4% of sales by 2030, holding there, with those earnings counted for ten more years after 2035 and nothing beyond that. That lifts owner earnings to roughly $34 million a year by 2035. Together with the cash on hand this is worth about $7.50 per share. What would prove this wrong. If operating leverage returns quickly and gross margin recovers to 42%, the business is worth substantially more than our base case. If instead the cash burn continues at the second-quarter pace, the bear case applies. We could not fully rebuild owner earnings for the first half of 2026 from the filings available to us; our view of 2026 rests on the reported quarterly figures for sales, gross profit, stock compensation, cash and debt. The margin-of-safety price is set well below the base and bull values, and applies only after the business shows it can fund itself.