Simply Good Foods’s stock price has taken a beating over the past six months, shedding 21.6% of its value and falling to $27 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Simply Good Foods, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Simply Good Foods Not Exciting?
Despite the more favorable entry price, we're cautious about Simply Good Foods. Here are three reasons why SMPL doesn't excite us and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
With $1.46 billion in revenue over the past 12 months, Simply Good Foods is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Simply Good Foods’s revenue to rise by 1.4%, a deceleration versus This projection doesn't excite us and indicates its products will face some demand challenges.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Simply Good Foods’s margin dropped by 5.5 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. Simply Good Foods’s free cash flow margin for the trailing 12 months was 12%.
Final Judgment
Simply Good Foods’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 13.5× forward P/E (or $27 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
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