This model gives us a good idea of the possible range the stock might trade in over the next year - an extremely useful tool when trying to select entry points for investments.
Even with storied brands such as Atkins, there is always a high risk with diet-based products. There’s certainly a lot of potential with the company. Revenues grew at double-digits before Quest . The question is can they regain that trajectory.
Most diets fade as quickly as they started. Yet, Atkins remains as popular as ever.
Paired with Quest nutritional items, Simply Foods appeals to the health-conscious trend that’s held for more than two decades.
Even with a limited array of products, the company saw remarkable growth since it started trading in 2016.
In their most recent quarter, they delivered stunning results led by the Quest acquisition.
Some of the most notable items included:
-Net sales increased 51.9% driven by the Quest acquisition
-Net income of $22.5 million versus a net loss of $4.8 million
-Adjusted Diluted EPS of $0.29 versus $0.22
-Adjusted EBITDA increased 53.2% to $48.7 million
-Quest net sales increased from $78.7 million to $95.8 million
-Legacy Atkins sales increased 0.2% including a 1.7% headwind due to the SimplyProtein divestiture
Joseph E. Scalzo, President and Chief Executive Officer had this to say about the quarter.
“We are pleased that our fiscal first quarter performance exceeded our expectations despite the ongoing challenges of operating in the COVID-19 environment. We delivered another quarter of sequential improvement in both net sales and driven primarily by strong e-commerce growth, retail takeaway that exceeded our expectations and the timing of shipments related to the inventory build by certain retailers.”
With the acquisition of Quest , Simply Foods grew their business from around $600 million to $1 billion annually. As the company completes the integration, they expect related costs to fall off over the next year.
When we look at the stock’s performance over the last year, you can see how it only recently got back to levels it saw last year.
With roughly in line with what they were then, that makes the stock look to be a bit of a discount.
Consider that a year ago it did not include the Quest brand. Although markets are forward-looking, there’s upside potential as margins increase as debt is paid off and synergies are released. That says nothing for potential revenue growth either.
And that’s the biggest open question. Investors need to understand how and where the company plans to drive growth to justify their current valuation.
It’s place our cycle model in an awkward place, caught somewhere between a growth trap and actual momentum.
In effect, the model recognizes the contribution delivered by the Quest acquisition but also notes the underlying weakness in organic growth.
It becomes strikingly apparent when you look at the growth by quarter over the past several years.