Smart For Life, SMFL, Leaps 58% Premarket – Why?

Smart for Life (NASDAQ: SMFL) stock is a new addition to NASDAQ, having floated just over a month ago. The performance has been distinctly unimpressive since then. The IPO was at $2.68 per stock and at at the close of the market last night the stock SMFL stock price was 0.93 cents. This isn’t what any of us would like to see in a new issue. Especially as you’re not supposed to short new IPOs for the first 30 days.

Overnight – or premarket this morning – Smart for Life stock has jumped 58%, or 54 cents to $1.45. The particular trigger for this stock price move at SMFL seems to be reports of changes in stockholdings.

As to the company itself, Smart for Life is what used to be called a “roll up”. Imagine an industry which was highly fragmented. Few are able to make good profits as costs are high for all, no one has any market power. This is something solvable by collecting together a number of the market players. In that way, certain of the costs common to each market participant can be centralised. Even, paid only once but spread over the activities of many companies.

Further, when there is some significant portion of the marketplace under the one umbrella then market power – more specifically, pricing power – might be achieved.

Also Read: What To Do During A Market Sell-Off

Roll-ups have worked in all sorts of industries from insurance through to, would you believe it, funeral directors.

Smart for Life is looking to do this in the nutritional and health markets. One of their offerings is a diet based upon cookies – or as the joke is, babies’ rusks. They’ve picked up the rights to use the “Sport’s Illustrated” brand on nutrition products. They’ve acquired Ceuatamed as a worldwide brand – a vitamins and supplements company.

The most recent announcement is that they’re paired up with Amazon to launch in Singapore thereby entering the SE Asian market.

Whether Smart for Life will work in their plans or not is an entire unknown at present. Roll ups can work and also some to many of them don’t. The particular skill is in selecting those businesses which are to be added to the pool and then being able to integrate them. That is, it’s near entirely the management team that matters.

The specific business line is much less of a matter of importance. For the value, addition is not in fact in the business line itself at all. It’s in the ability to both reduce costs and gain market – and pricing – power by the agglomeration. So, if value is to be added by the process it is in the ability to do those things, not whatever the market sector it’s being done in.

It’s too early to say how well Smart for Life stock is going to do as we’ve not the evidence about those skills.