Over the past six months, B&G Foods’s shares (currently trading at $4.09) have posted a disappointing 12.2% loss, well below the S&P 500’s 10.9% gain. This might have investors contemplating their next move.
Is now the time to buy B&G Foods, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think B&G Foods Will Underperform?
Even though the stock has become cheaper, we’re swiping left on B&G Foods for now. Here are three reasons why there are better opportunities than BGS, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. B&G Foods struggled to consistently generate demand over the last three years as its sales dropped at a 5.4% annual rate. This was below our standards and signals it’s a low quality business.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for B&G Foods, its EPS declined by 19.4% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
B&G Foods’s $2.01 billion of debt exceeds the $64.54 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $270.7 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. B&G Foods could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope B&G Foods can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
B&G Foods falls short of our quality standards. After the recent drawdown, the stock trades at 6.8× forward P/E (or $4.09 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
Stocks We Would Buy Instead of B&G Foods
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