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A MOSCOW MILK

seller recently came to my attention under mysterious circumstances.

Wimm-Bill-Dann Foods commands a third of Russia's dairy market and does brisk business in juice, bottled water and baby food. It turned up in my finickiest value screen. The screen looks for companies whose price/sales, price/earnings and price/cash flow ratios are below industry medians. It also seeks forecasts for healthy profit growth over the next several years.

Little about Wimm-Bill-Dann's stock says that it is cheap. Not the near-sevenfold price increase over the past five years, and certainly not the price/sales ratio of 2.4. The median S&P 500 stock fetches 1.4 times sales. America's largest dairy operator, Dean Foods, goes for just 0.3 times sales. So why is Russia's milk company so expensive, and what's it doing in a screen meant to find bargains?

Most dairies are small, private companies. Only a handful of stocks in our database are listed as dairies, and most of these deal, not in low-margin milk, but in more lucrative products made from it. Lifeway Foods, for example, specializes in kefir, a fermented milk drink billed as a source of healthy bacteria. Synutra International sells baby formula in China. Both companies carry P/S ratios of greater than 5, making Wimm-Bill-Dann cheap by comparison. Hence its appearance on our screen.

As for why the company is so pricey for a true dairy, and whether it's worth the premium, the answer to both lies in Russia's remarkable growth. Last year Russia's economy swelled 8.1% after subtracting for inflation, nearly four times America's growth. Private consumption grew 13% on a 16% rise in average income. According to Datamonitor, a market researcher, Russia's dairy business grew at a compounded yearly rate of 17.6% from 2002 through 2006 and should average 11.4% a year growth from 2006 to 2011.

With distribution networks in 26 Russian cities, Wimm-Bill-Dann collects three-quarters of its sales from dairy products, 18% from juice and mineral water and the rest from baby food. Sergei Plastinin, a co-founder, describes the company's development in disarmingly frank fashion on the company's web site. After buying a juice made from concentrate in 1992, it occurred to Plastinin that its production "could be very profitable." As for the odd name, he explains that it was created to sound foreign, since customers at the time showed a strong preference for imports. A sharp devaluation in Russia's currency in 1998 made imported dairy products expensive, and shifted demand to Russian products, whose quality had improved relative to imports.

Wimm-Bill-Dann is still producing enviable growth. This year sales are seen rising 29%, vs. 5% for Dean Foods. The company is buying its way into underserved markets in Russia's interior; analysts say juice is still a relative novelty in some of them. Profits in the dairy business are being pinched by rising feed-grain prices on one end and worrisome government experiments with price controls on the other. But Wimm-Bill-Dann, like its rich-world counterparts, is shifting production to more profitable products, like yogurt, low-fat cream and packaged cheese. And while baby food is the company's smallest business, it's also growing the fastest. Russia, having long struggled with a low birth rate, last year produced its biggest baby boom in a quarter century, thanks in large part to new government rewards given to mothers of two.

If shares of Wimm-Bill-Dann, at 28 times this year's earnings forecast, look twice as expensive as the average American stock, the company's growth potential is easily twice as rich. Wall Street expects the company to grow earnings by 41% this year and 31% next year. Those numbers suggest the stock's current price is fair and perhaps cheap.

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Data as of April 21.

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