Business Model
Ticker: LWAY.
Stock Market: NASDAQ.
Industry: Packaged Beverages.
Market Capitalization: $369M USD.
Lifeway is a company I started investing in in July 2024 and ended up selling in September of that same year with a 110% return. More than a year and a half has passed since I sold, and the price is slightly below my selling price, even though EPS grew 49% in 2025 and 35% in Q1 2026. So, the business has clearly continued to perform.
The company sells a probiotic fermented drink, called kefir. Kefir is similar to yogurt but thinner and with a higher probiotic content. And although it tastes awful, its benefits for gut health have made it a product with increasing adoption, as it fits quite well with the trends of functional foods, healthy products, and natural products.
To make it more tastier, Lifeway has added flavorings that enhance the flavor and make it easier to consume. And, in the years since I’ve known the company, I’ve often heard friends and family mention that “they’re drinking kefir because it’s healthy”, even without me bringing up the topic to the conversation. And when someone says the word kefir, they’re practically referring to Lifeway, since the company currently holds a 79% market share in this niche, while Maple Hill, the second-largest market share holder, doesn’t even reach 10%.
So the company has a very attractive setup in which:
It has considerable control over a niche market.
This niche is growing as gut health becomes a concern for people.
99% of its sales still come from the United States.
74% of American have tried consuming probiotics (not necessarily kefir), and Lifeway’s kefir has become a convenient and easy to use source. This explains the brand’s strength and recent growth.
The underlying trend is reflected in the sales growth, since in 2025 sales grew 14%, but recently they have been accelerating, growing 24% in Q3 2025, 18% in Q4 2025, and 37% growth in Q1 2026!
This growth is accompanied by gross margins of around 30% (pretty average for the sector), EBITDA margins of 10-11%, a return on invested capital of 15%, and $5.6 million in cash compared to total debt of $7 million due to a credit line they only began using this quarter. Even so, the net debt/EBITDA ratio is 0.1x, so the company’s numbers are solid.
I don’t think the recent growth acceleration is a coincidence, as the company has been exploring various ways to increase kefir consumption and make it mainstream. For example, they launched a high-protein cheese, probiotic kefir butter and a tropical smoothie made with kefir. And the most interesting product: Muscle Mates.
This is basically the classic kefir of Lifeway but flavored without added sugar, with 20g of protein and 5g of creatine. This drink is exactly what people are looking for lately, as it combines health benefits with easy and convenient consumption. And once commercialization really gets underway, I think it will add even more growth to the company.
The Danone novel
So far, it’s clear that this is a good business and that it’s executing well. However, it hasn’t all been smooth sailing, and the company has been surrounded in corporate noise over the past two years.
If you recall, I sold my shares in September 2024. This was because at that time, the company had received an acquisition offer from Danone at $25 per share, which was somewhat expected considering that Danone had owned more than 20% of Lifeway’s shares since 1999. However, in November 2024, Lifeway finally decided to reject the offer, and Danone upped its bid to $27 per share, which was also rejected. And from then on, a battle started.
On one side was Danone’s offer, supported by Edward and Ludmila Smolyansky (the CEO’s brother and mother), who together owned almost 25% of the company’s shares + the 23% controlled by Danone. On the other side was Julie Smolyansky, the CEO, with 14% of the shares, and the rest of the board of directors, who didn’t want to accept any takeover offer. And even before Danone’s offer came in, the family was already embroiled in legal conflicts because the brother and mother were seeking to remove the CEO from her position, so this only added fuel to the fire.
This is important because, finally, in September 2025, an agreement was reached for Lifeway to nominate new board members who were unaffiliated with Danone or the Smolyansky family (subject to Danone’s approval), separate the Chair and CEO roles, suspend litigations, and most importantly, file a shelf registration statement which would facilitate Danone to sell its shares if it so decided.
Well, that day has arrived, and in May 14th, Danone decided to sell 3.45 million shares at a price of $19.50, even though on the day of the announcement, the shares were trading at almost $27. Those 3.45 million shares represent Danone’s entire holding, meaning that Lifeway’s shares will be subject to selling pressure on 23% of the total shares at a price 25% below the price at which they were trading on the day of the announcement. This could create a situation where the share price is temporarily and artificially lowered, since it’s not shareholders selling shares for fundamental reasons. Rather, it’s a breakdown in the business relationship between Danone and Lifeway that culminates in a massive sell-off unrelated to the company’s performance (and a dirty move by Danone, if you ask me, because there was no need to sell so cheaply).
Valuation
The company grew 37% in Q1 2026 and its net margins were 7%, but I don’t think this growth will be sustained for the rest of the year overall. Or maybe it will, but I wouldn’t consider it my base-case scenario.
Assuming 20% growth over the next five years, margin expansion as operational efficiency improves, and multiples of 15x EV/EBITDA and 20x P/E, then I believe that at the current price, there’s a very appealing compound annual return if the company continues operating as it has been.
Risks and Conclusions
While the business itself remains strong, with a market-leading product and a long runway for growth through new products and international expansion, as I’ve already started seeing Lifeway products in many supermarkets here in México, which suggests the brand still has meaningful room to expand beyond the U.S.
That said, it’s difficult to ignore the family-related corporate issues. So far, the CEO has made solid decisions and demonstrated that she can operate the business effectively, but as long as her brother remains involved, the company will likely continue dealing with internal power struggles. Danone’s decision to fully exit by selling its stake removes one corporate overhang, but it could also create near-term selling pressure on the stock price. In addition, there’s always the possibility that Danone could eventually invest more aggressively in competing kefir products now that it has fully separated itself from Lifeway. Even so, Lifeway’s operational performance keeps reminding me of one of Warren Buffett’s most famous quotes:
“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
I think it’s truly remarkable that despite all the internal drama, the company continues to deliver stronger results almost every quarter, even with several growth initiatives still largely untapped. That’s why I wouldn’t be overly concerned about potential changes in the CEO position. The product itself appears strong enough that Lifeway could still become a success story even under imperfect leadership.
Disclaimer
All content is for informational purposes only and should not be considered investment advice. Do your own research.