Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry’s 2.6% return has trailed the S&P 500 by 3.9 percentage points.
Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. On that note, here are three consumer stocks we’re swiping left on.
Hain Celestial (HAIN)
Market Cap: $61.74 million
Sold in over 75 countries around the world, Hain Celestial (NASDAQ: HAIN) is a natural and organic food company whose products range from snacks to teas to baby food.
Why Are We Out on HAIN?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Hain Celestial’s stock price of $0.68 implies a valuation ratio of 30.2x forward P/E. If you’re considering HAIN for your portfolio, see our FREE research report to learn more.
Celsius (CELH)
Market Cap: $8.67 billion
With its proprietary MetaPlus formula as the basis for key products, Celsius (NASDAQ: CELH) offers energy drinks that feature natural ingredients to help in fitness and weight management.
Why Are We Cautious About CELH?
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 5.9 percentage points
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.8 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively
Celsius is trading at $33.81 per share, or 20.8x forward P/E. Check out our free in-depth research report to learn more about why CELH doesn’t pass our bar.
Bunge Global (BG)
Market Cap: $24.18 billion
With origins dating back to 1818 and operations spanning both hemispheres to balance seasonal harvests, Bunge Global (NYSE: BG) is an agribusiness and food company that processes oilseeds, grains, and other agricultural commodities into vegetable oils, protein meals, flours, and specialty ingredients.
Why Is BG Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6.5% over the last three years was below our standards for the consumer staples sector
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 17% annually
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $124.38 per share, Bunge Global trades at 12.5x forward P/E. To fully understand why you should be careful with BG, check out our full research report (it’s free).
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