Five years after becoming a public company Vital Farms, Inc. (VITL), an egg and butter producer, revealed newly discovered control deficiencies that cast doubt about the accuracy of its reported revenue and inputs.

In disclosing deficiencies related to the “revenue process”, Vital Farms acknowledged a lack of expertise in developing financial reporting safeguards. The deficiencies also extend beyond revenue processes, specifically:

“...management identified deficiencies in controls to ensure the accuracy of the inputs (e.g., price and/or quantity) related to the sales order entry and invoicing processes impacting revenue and accounts receivable.”

Vital Farms said in its latest annual report the material weakness did not result in a material misstatement of its financials.

However, the company did detail what specifically it discovered this year that caused a change of heart— Vital Farms has assured investors in the prior three annual reports its controls were effective.

Not coincidentally, Vital Farms’ auditor flagged the company’s sufficiency of evidence regarding reported revenue as a critical audit matter (CAM).

With an Enterprise Value (EV) of approximately $1.2 billion, Vital Farms is priced as if it will grow annual sales to more than $5.1 billion, up from an estimated $741.4 million in 2025. To justify its current share price of $31.15 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Vital Farms must:

—Grow sales 25% annually between 2027-2034, significantly faster than the company’s estimated 2025 and 2026 sales growth of 22.3% and 17.5%, respectively
—Increase NOPAT margin to 8.5%, higher than our 2024 estimate of 8.2% and our 3-year average estimate of 5.2%
—Maintain Invested Capital (IC) Turns at 3.1 versus our 3-year average estimate of 2.3

Notably, the current share price also implies Vital Farms increases Return on Invested Capital (ROIC) to 26.3% from our 2024 estimate of 25.3 and 3-year average estimate of 14.4%: