3 Reasons to Steer Clear of FLO and One Alternative Stock Worth Buying

Flowers Foods Stock: Recent Performance and Investor Considerations

Over the past half year, Flowers Foods has seen its share price tumble by 34.7%, now trading at $9.70 per share. This significant decline may leave investors questioning their next steps regarding the stock.

Should you consider adding Flowers Foods to your holdings now, or is caution warranted?

Reasons We Expect Flowers Foods to Lag Behind

Despite the stock’s lower price, we’re not optimistic about Flowers Foods at this time. Below are three key factors behind our lack of enthusiasm, along with an alternative stock we prefer.

1. Weakening Demand Reflected in Falling Sales Volumes

Revenue growth is driven by both pricing and the number of units sold. For consumer staples, maintaining strong sales volumes is crucial, as there’s a limit to how much customers will pay before switching to generic alternatives.

Flowers Foods has experienced a 1.9% average quarterly decline in sales volumes over the past two years—a concerning trend, especially since demand for staple goods is usually steady.

Flowers Foods Year-On-Year Volume Growth

2. Revenue Outlook Points to Further Challenges

Analyst forecasts provide insight into a company’s future prospects. While projections aren’t always perfect, accelerating revenue growth tends to lift valuations, whereas slowing growth can drag them down.

Wall Street expects Flowers Foods’ revenue to decrease by 1.3% over the next year. This lackluster forecast suggests the company may continue to face demand headwinds.

3. Declining Earnings Per Share

We monitor long-term trends in earnings per share (EPS) to gauge whether a company’s growth is translating into profitability.

Unfortunately, Flowers Foods’ EPS has dropped by an average of 21% per year over the past three years, even as its revenue increased by 3%. This indicates that the company’s profitability per share has deteriorated during its expansion.

Flowers Foods Trailing 12-Month EPS (Non-GAAP)

Our Verdict

Flowers Foods does not meet our quality standards. Although the stock now trades at a forward P/E of 12 (or $9.70 per share), which appears reasonable, the company’s underlying issues present significant downside risk. We believe there are better investment opportunities available. Consider exploring one of Charlie Munger’s favorite companies instead.

Stocks We Prefer Over Flowers Foods

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