I finally found time to take a closer look at Cal-Maine Foods ($CALM). A mechanical valuation looks extremely good: tools.theinvestlog.com/….

But it's misleading. The models took three years of inflated egg prices and fantastic margins and extrapolated them forward.

CALM is an interesting business, and I wanted something this down to earth in my portfolio to offset the hyperscalers hype. But the thesis doesn't provide enough margin of safety.

First, for an egg producer, economy-of-scale effects are weak and sometimes negative.

Second, the prepared foods segment is weak so far. And expanding into new markets is a risky enterprise.

Third, and most important: I don't see the pivot to specialty eggs as an advantage. "Specialty" is a diverse category. We get aggregate numbers on dozens sold and price, but not the specifics. We don't know segment margins. Price stability here comes from long-term agreements, not pricing power.

My read is that CALM is being pushed into "specialty" by lawmakers demanding more cage-free eggs (Colorado, for example). Cage-free is becoming the new standard. If the trend continues, at least some specialty categories will be commoditized, and the price will be set in negotiations with Walmart. I doubt their purchasing department lets any additional cent slip into CALM's margins without a tough battle.