Simply Good Foods Stock Looks Healthy

A little over a year ago Simply Good Foods (NASDAQ:SMPL) was among the least appetizing packaged food stocks. The onset of the pandemic translated to low demand for on-the-go nutrition as gyms closed and people worked from home.

Since then, Simply Good Foods has simply gone about its business of making healthy bars, shakes, and snacks while it waited for its markets to recover.

Last month its stock reached a record intraday high of $35.25 thanks to a resurgence in the business and a brighter outlook for demand from fitness-minded consumers. The fundamentals are looking healthier these days but with the bar now set higher, is it a good time to snack on shares of Simply Good Foods?

 How Did Simply Good Foods Perform in Fiscal Q2?

Before the market open on April 7^th, Simply Goods Foods reported fiscal second-quarter results for the period ended February 27^th. It's an unusual reporting period because it includes the holiday month of December and two months into the new year. Nevertheless, the report gave investors a good sense of how the business is doing during the economic recovery.

This was the first quarter that the Quest business factored into the full quarter and it's a good thing it did. Quest sales were strong as was the e-commerce side of the business helping adjusted EPS grow 8.7% to $0.25 and top the Street by two cents. Sales were up a more modest 1.5% to $230.6 million with softer retail sales being helped along by a 60% jump in online Atkins and Quest brand sales.

This was a rather impressive beat considering consumers were still largely staying at home during the quarter. In a normal economic environment, Simply Good Foods relies heavily on people making on-the-go purchases as they zip around to meetings, the gym, and soccer practice. Even with fewer places to go to and fewer reasons to stop into a convenience store for a protein bar, the company was still able to deliver another decent quarter. This suggests that it is entering the post-pandemic era with the wind at its back.

Where Does Simply Good Foods Go from Here?

With two solid quarters in the books, management struck an upbeat tone in offering full year guidance. It sees fiscal 2021 sales of $930 million to $940 million which at the midpoint represents 14% year-over-year growth.

Fittingly, Simply Good Foods is a leaner business these days after shedding its SimplyProtein brand and leaving the European market. Exiting Europe may seem like a peculiar strategy in a time where packaged food companies are seeking out international growth, but it should suit Simply Good Foods well. It will allow the company to focus on its core North America business where there is still plenty of room for growth and expand in other international markets that have the potential for above-average growth.

In the back half of the year, like many food companies, Simply Good Foods will face some easy comparisons. More people are expected to be out and about as vaccines are administered and summer weather sets in. Barring a setback in the COVID fight, this should translate into more grocery store visits, more convenience store pop-ins, and greater financial results for Simply Good Foods.

 Is it a Good Time to Buy Simply Good Foods Stock?

With Simply Good Foods setup for some easy comps and consumer behavior likely to normalize as the year progresses, it wouldn't be surprising to see the company hit it out of the park in the third and fourth quarters.

But looking past the near-term upside, let's not lose sight of the fact that Simply Goods Foods is positioned to benefit from two of the biggest trends in the way people eat—healthy and on-the-go. The on-the-go trend will take more time to come back but as roadways gradually get busier, we will inevitably return to our convenience-hungry ways.

Much like it has sped up the transition to e-commerce, the pandemic is said to be accelerating the movement towards exercise and healthy eating. This means that greasy chips and candy bars will be increasingly replaced by nutritious snacks, bars, and ready-to-drink (RTD) shakes.

Based on management's latest guidance for 2021 earnings, Simply Good Foods is trading at 29x earnings. This may seem like a steep price to pay for a food stock, but investors are getting 20% bottom-line growth for that price. And this growth could very well accelerate into 2022 as the company leans less on e-commerce and more on retail channels.

After doubling off its March 2020 bottom and climbing roughly 50% since late October, Simply Good Foods looks more like a 'hold' than a 'buy'. However, a general market weakness that drags the stock below $30 should get investors' attention. Given the strength of its brands, Simply Good Foods is a healthy way to play the health and wellness theme.