By: Adrienne Newell, Medill News Service

April 8, 2004, Chicago Daily Herald

Lifeway Foods, a small kefir-producing company based in Morton Grove, has seen its stock price climb at a remarkable rate since January, going from about $6 at the start of the year to close at $20.34 Wednesday. Its price-to-earnings ratio has leapt as well, going as high as 79 this week.

By contrast, blue chip stock Microsoft is at around 31.

Such terrific growth may indicate the price is vulnerable, however, warn investment professionals.

"Usually if the stock has gone up that quickly, it can be very risky," said Allan Drebin, professor of accounting, information and management at Northwestern University's Kellogg School of Management.

Motley Fool contributor and Lifeway stock owner Rich Smith agreed, saying that in the "short run" it could be a dangerous investment.

"I would caution individual investors not to 'trade' the stock at this price because I do not see any margin of safety in the valuation," Smith said.

Lifeway, which manufactures dairy-based health food products like Russian breakfast food kefir, a yogurt-like drink, was judged undervalued by industry analysts last year.

But by April, with its P/E of 78 far exceeding the market average of 22, the stock has rocketed into overvalued territory.

"The market can overreact and overcompensate for its earlier mistakes, bidding a stock up to more than its intrinsic value," Smith wrote in Motley Fool when the stock surged in February.

"Sometimes there's a stampede aspect. I think that's what happened with the Internet stocks - people bought and then the bubble burst," Drebin said.

Smith said this week that Lifeway appears "to be defying gravity. ...Either my calculations were wrong, or the company is going the route of similar 'story stocks' - defying conventional valuation metrics."

Smith may, in part, be responsible for Lifeway's rapid rise - after his first, positive Feb. 9 Motley Fool article, the company's stock jumped 24.5 percent.

The stock jumped again after a split.