TWNK inventory has sound fundamentals and continues to develop market share
After I was first wanting round for shares to placed on my watchlist, Hostess Manufacturers (NYSE: TWNK) wasn’t one which got here to thoughts. TWNK inventory is up over 100% because the begin of the pandemic. Most of that development occurred in 2021. Since Hostess Manufacturers doesn’t pay a dividend, I thought that the corporate may face some robust comps that may put a ceiling on inventory worth development.
Nevertheless, the corporate’s inventory is up 7% in 2022. That’s no small accomplishment with many shares within the pink. And Hostess simply delivered an earnings report wherein they beat on the highest and backside strains. However there’s extra. Each numbers have been increased from the identical quarter the prior 12 months.
This was the corporate’s ninth straight quarter of delivering income development of a minimum of 9%. And it completed that feat whereas sustaining its margins. My takeaway from that is that the corporate is, to this point, capable of move alongside a few of its rising prices to customers.
In fact, this 12 months greater than most previous performances is not going to be sufficient to excite buyers. So listed below are three the reason why I consider TWNK inventory ought to make your watchlist.
On Tempo to Beat the Broader Market
In occasions of market volatility, it’s necessary to study the teachings of historical past. And I’m not speaking in regards to the previous noticed that over time shares go up. They’ve and it’s possible that they’ll once more…sometime. However since we don’t know when sometime might be, what I imply by the teachings of historical past has to do with expectations.
The previous couple of years have been unbelievable for market individuals. For instance, the S&P 500 Index was up 47% from the top of 2019 to the top of 2021. And Hostess Manufacturers barely outpaced the S&P 500. TWNK inventory is up 50% in that very same timeframe.
Nevertheless, traditionally, if buyers can get 10% inventory worth development they take into account that to be a great 12 months. That is one thing to remember as institutional buyers are repricing the market.
To this point in 2022, Hostess Manufacturers is up 7% for the 12 months. And the consensus estimate means that TWNK inventory might have an upside of 16%. Citigroup (NYSE: C) was the most recent analyst to enhance its worth goal for Hostess Manufacturers. If the inventory have been to hit Citigroup’s purpose of $28 per share it might mark a 27% improve from present ranges.
Not Terribly Overvalued
Over the past two years, it’s change into trendy for buyers to say that “fundamentals don’t matter.” If the latest market exercise is proving something it’s that fundamentals will all the time matter. It is a downside for many shares as a result of by conventional metrics many shares stay overvalued. And Hostess is not any exception.
With a price-to-earnings (P/E) ratio of 24.30, Hostess Manufacturers is barely overvalued in comparison with the general sector. Nevertheless, buyers may see that the corporate’s price-to-book (P/B) ratio (roughly 1.77) is barely under the sector common.
Growing Market Share
Hostess Manufacturers was a pandemic winner on the power of at-home snacking. The corporate famous on its latest earnings name that this class continues to be elevated. And, 2021 introduced a return of its comfort retailer enterprise that showcases the corporate’s single-serve point-of-sale objects. So it was good to see that within the first quarter of 2022, the corporate’s income and earnings are nonetheless rising.
And within the firm’s Investor Day presentation in March it introduced that it was persevering with to add market share. One motive for this can be that the corporate has comparatively much less publicity to competitors from non-public label manufacturers.