Seeking Alpha: Waiting For The Grass To Grow At S & W Seed Company

The wait goes on for S&W Seed Company (NASDAQ:SANW) (or "S&W") to prove its merits as an under-followed player in the ag space. The shares are down another 17% from my last update, about flat over the last year, and down 40% over the past two years. Weak as that may be, S&W has actually outperformed Monsanto (NYSE:MON) since June and over the past year, as there's been a sharper reaction to Monsanto's negative revisions.

Not a lot has changed from a fundamental perspective since last June, though a disappointing harvest in 2015 is going to have near-term repercussions on margins. The key debate around S&W, at least in my thinking, remains whether the company can successfully shift farmers from public/generic seed varieties and share in a larger proportion of the value created by its yield-enhanced and other proprietary alfalfa seed varieties. My low double-digit annualized revenue growth estimate is hardly conservative, but S&W could achieve it with a combination of low single-digit acreage growth and an improvement in value capture from less than 10% to less than 20% - still well below the 25%-plus that Monsanto and DuPont (NYSE:DD) can reliably get from their corn and soybean varieties.

If S&W can do it, and achieve a long-term gross margin above 30% and a long-term operating margin in the mid-teens, a fair value of over $6 still remains in play after a recent dilutive financing.

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Waiting For The Grass To Grow At S & W Seed Company