Over the past six months, J&J Snack Foods’s stock price fell to $112.72. Shareholders have lost 9.7% of their capital, which is disappointing considering the S&P 500 has climbed by 5%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in J&J Snack 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 J&J Snack Foods Not Exciting?
Despite the more favorable entry price, we don't have much confidence in J&J Snack Foods. Here are three reasons why there are better opportunities than JJSF and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
With $1.6 billion in revenue over the past 12 months, J&J Snack 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 J&J Snack Foods’s revenue to rise by 2.2%, a deceleration versus This projection is underwhelming and indicates its products will see some demand headwinds.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, J&J Snack Foods’s margin dropped by 2.7 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. J&J Snack Foods’s free cash flow margin for the trailing 12 months was 4.2%.
Final Judgment
J&J Snack Foods isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 21.2× forward P/E (or $112.72 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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