The Simply Good Foods Co Stock Appears To Be Fairly Valued

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GF Value
Apr 16, 2021
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The stock of The Simply Good Foods Co (NAS:SMPL, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $32.99 per share and the market cap of $3.2 billion, The Simply Good Foods Co stock is estimated to be fairly valued. GF Value for The Simply Good Foods Co is shown in the chart below.

The Simply Good Foods Co GF Value Chart

Because The Simply Good Foods Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 10.17% annually over the next three to five years.

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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. The Simply Good Foods Co has a cash-to-debt ratio of 0.17, which is worse than 74% of the companies in the industry of Consumer Packaged Goods. GuruFocus ranks the overall financial strength of The Simply Good Foods Co at 5 out of 10, which indicates that the financial strength of The Simply Good Foods Co is fair. This is the debt and cash of The Simply Good Foods Co over the past years:

debt and cash

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. The Simply Good Foods Co has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $899.1 million and earnings of $0.71 a share. Its operating margin is 14.65%, which ranks better than 83% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of The Simply Good Foods Co is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of The Simply Good Foods Co over the past years:

Revnue and Net Income

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of The Simply Good Foods Co is -42%, which ranks in the bottom 10% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is -42.7%, which ranks in the bottom 10% of the companies in the industry of Consumer Packaged Goods.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, The Simply Good Foods Co's return on invested capital is 5.13, and its cost of capital is 7.71. The historical ROIC vs WACC comparison of The Simply Good Foods Co is shown below:

ROIC vs WACC

Overall, the stock of The Simply Good Foods Co (NAS:SMPL, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in the industry of Consumer Packaged Goods. To learn more about The Simply Good Foods Co stock, you can check out its 30-year Financials here.

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