Unveiling The Simply Good Foods Co (SMPL)'s Value: Is It Really Priced Right? A Comprehensive Guide
The Simply Good Foods Co (NASDAQ:SMPL) has been making waves in the stock market, with a notable daily gain of 4.02% and an Earnings Per Share (EPS) of 1.26. However, over the past three months, the company has experienced a loss of 4.64%. This raises the question: Is the stock modestly undervalued? In this article, we will delve into a comprehensive valuation analysis of The Simply Good Foods Co to answer this question. Let's get started.
Company Introduction
The Simply Good Foods Co is a prominent provider of low-carbohydrate, high-protein bars, shakes, and other products under the Atkins and Quest brands. The company's philosophy is centered around the high protein/low carbohydrate diet trend, which was launched by Dr. Robert Atkins in 1972. The company's valuation currently stands at $35.22 per share, with a market cap of $3.50 billion. The GF Value, our estimation of the fair value, is $40.46, suggesting that the stock is modestly undervalued.
Understanding GF Value
The GF Value is our exclusive measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides a snapshot of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given this, The Simply Good Foods Co's stock is estimated to be modestly undervalued. As the stock is relatively undervalued, its long-term return is likely to be higher than its business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. The Simply Good Foods Co has a cash-to-debt ratio of 0.19, which is worse than 67.35% of the companies in the Consumer Packaged Goods industry. However, the overall financial strength of The Simply Good Foods Co is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. A company with high profit margins is generally a safer investment than one with low profit margins. The Simply Good Foods Co has been profitable for 5 out of the past 10 years. Over the past twelve months, the company had a revenue of $1.20 billion and Earnings Per Share (EPS) of $1.26. Its operating margin is 16.11%, which ranks better than 87.22% of the companies in the Consumer Packaged Goods industry. Overall, the profitability of The Simply Good Foods Co is ranked 6 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. The Simply Good Foods Co's 3-year average revenue growth rate is better than 83.8% of the companies in the Consumer Packaged Goods industry. Its 3-year average EBITDA growth rate is 132%, which ranks better than 98.03% of the companies in the same industry.
ROIC vs WACC
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) to its weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, The Simply Good Foods Co's ROIC was 7.67, while its WACC came in at 8.25.
Conclusion
In conclusion, the stock of The Simply Good Foods Co is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is also fair. Its growth ranks better than 98.03% of the companies in the Consumer Packaged Goods industry. To learn more about The Simply Good Foods Co stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
