A Fresh Look at Simply Good Foods (SMPL) Valuation After Strong Revenue Growth and Earnings Beat

Simply Good Foods (SMPL) just gave investors something to chew on. The company’s latest quarterly results showed a 13.8% jump in revenue compared to last year, propelled by strong demand for its Quest and OWYN brands. Not only did revenues climb, but Simply Good Foods also outperformed on EBITDA, surpassing what analysts were expecting. For investors watching the packaged foods space, this combination of brand momentum and better-than-forecast profitability is bound to prompt a closer look at what is driving SMPL’s fortunes and where things might be headed next.

This positive update arrives after a year where the stock price has been under pressure, falling 23% in the past year despite management delivering steady 4% annual sales growth and a 10% increase in net income. Momentum hasn’t really been in SMPL’s favor, with shares dropping about 33% year-to-date. Still, even a satisfactory quarter like this creates a different narrative when many food peers, like Hain Celestial, are struggling to find growth or missing earnings marks, while Hershey is sprinting ahead at an even faster pace.

So after the recent declines and upbeat quarterly results, is Simply Good Foods now an overlooked value, or are investors already betting on future gains being baked into the price?

Most Popular Narrative: 30.5% Undervalued

The current consensus sees Simply Good Foods as significantly undervalued, with fair value estimates pointing more than 30% above the recent share price. That assessment hinges on expectations for shifting product focus, innovation, and channel expansion to unlock stronger profits in coming years.

The successful launch and scaling of Quest's salty snacks platform, which has grown to a $300 million business, suggests a long runway for further penetration and growth. This could drive future revenue growth for Simply Good Foods.
OWYN's strong retail takeaway growth and plans to expand distribution channels and SKUs signal a substantial opportunity to double its net sales in the coming years. This expansion is poised to significantly impact revenue growth.

Think these bold bets are just marketing hype? There is a detailed roadmap behind this price target. Major revenue levers, margin upgrades, and an ambitious profit multiple are driving the fair value higher. Want to see how all these pieces fit together?

Result: Fair Value of $37.70 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, lingering concerns about leadership changes and ongoing declines in the Atkins brand could quickly challenge the bullish case for Simply Good Foods.

Find out about the key risks to this Simply Good Foods narrative.

Another View: Our DCF Model Points Higher

Taking a different approach, the Simply Wall St DCF model also suggests Simply Good Foods is trading well below its estimated value. This method factors in all expected future cash flows, instead of focusing solely on current profits. Could this model be spotting value that multiples might overlook?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Simply Good Foods for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Simply Good Foods Narrative

If you see things differently or want to dive into the numbers on your own terms, you can easily build your own view in just a few minutes. Do it your way

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Simply Good Foods.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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