As the name of the company ‘The Simply Good Foods Company’ (NASDAQ:SMPL) implies, it is in the food and beverage industry.

The company is set up with the aim of providing a variety of convenient, innovating, great-tasting, ‘better-for-you’ snacks and meal replacements, and other product offerings.

Currently, its products are marketed under the brand names ‘Quest’ and ‘Atkins‘ (a brand that the company acquired in July 2017), and its product portfolio comprises protein bars, ready-to-drink shakes, sweet and salty snacks, as well as confectionery products – which can be found in major retail channels (including grocery, convenience, and specialty stores, as well as online) in North America.

Products under The Simply Good Foods Company Comes under the Brand Names ‘Quest’ and ‘Atkins’. Image Source: TheSimplyGoodFoodsCompany.com

Question: “Is The Simply Good Foods Company a Good Investment?”

The best way to answer this question is to take a look at its financial performance and debt profile recorded over the years (I will be looking at data recorded over the last 4 financial years – between FY2019/20 and FY2022/23; the company has a financial year end on the last Saturday of August), whether its current traded price is at a ‘premium’ or at a ‘discount’, and last but not least, my ‘fair value price’ of the company computed based on the company’s 4-year valuations.

Let’s begin:

Financial Performance

In this section, I will be looking at a few aspects of the company’s financial performance: total revenue and net profit, gross and net profit margins, as well as its return on equity recorded over the last 4 years:

Total Revenue & Net Profit:

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Total Revenue (US$’mil)	$817m	$1,006m	$1,169m	$1,243m
Net Profit (US$’mil)	$66m	$41m	$109m	$134m

While the total revenue of the company saw year-on-year (y-o-y) growth every single year over the last 4 years, the pace of its growth have slowed – from a 23.1% growth in FY2020/21, to 16.2% in FY2021/22, and then to just 6.3% in FY2022/23. Despite of that, over the 4-year period, its total revenue saw a compound annual growth rate (CAGR) of a decent 11.1%.

For its net profit, apart from a 37.9% fall in FY2020/21, the remaining 3 years saw y-o-y improvements – in terms of its CAGR over the last 4 years, it is at 19.4%.

Gross & Net Profit Margins:

The following table is The Simply Good Foods Company’s gross and net profit margins which I computed:

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Gross Profit Margin (%)	39.8%	40.8%	38.2%	36.5%
Net Profit Margin (%)	8.1%	4.1%	9.3%	10.8%

The company’s gross and net profit margins have moved in contrasting directions over the years – the former slid from 40.8% in FY2020/21 to 36.5% in FY2022/23 (the lowest in 4 years), while the latter rose from 4.1% to 10.8% (which is the highest in 4 years) in the same time period.

Return on Equity:

Normally abbreviated as just RoE, in layman terms, it is a measure of a company’s ability to generate profits for every dollar of shareholders’ money it uses in its business. Generally, my preference is towards companies that are able to maintain its RoE at above 15.0% consistently.

The following table is The Simply Good Foods Company’s RoE over the last 4 financial years I’ve calculated:

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Return on Equity (%)	5.8%	3.4%	7.6%	8.5%

While its RoE has been on a steady upward climb since falling to a low of 3.4% in FY2020/21, but I deem it to be on the low side.

Debt Profile

Moving on, let us take a look at the debt profile of The Simply Good Foods Company – when it comes to shortlisting companies for investment, my preference is towards those that have little or no debt, and at the same time in a net cash position.

So, did the debt profile of the NASDAQ-listed company meet the 2 requirements of mine? Let us find out in the table below, where you’ll find the debt profile of The Simply Good Foods Company recorded over the last 4 financial years (i.e., between FY2019/20 and FY2022/23):

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Cash & Cash Equivalents (US$’mil)	$96m	$75m	$67m	$88m
Total Borrowings (US$’mil)	$597m	$451m	$403m	$282m
Net Cash/ Debt (US$’mil)	-$501m	-$376m	-$336m	-$194m

While the company is in a net debt position over the last few years, but with its total borrowings on a downward moving trend, its net debt position have also improved accordingly – from -$501m in FY2019/20 to just -$194m in FY2022/23.

Current ratio have been maintained at 2.6 – 4.1 in the same time period, suggesting the company have no problem in fulfilling its short-term debt obligations if need be.

Is the Current Traded Price of The Simply Good Foods Company at a ‘Discount’ or at a ‘Premium’?

As at 16 February 2024, The Simply Good Foods Company was trading at US$35.67.

The following table is a comparison of its current valuations vs. its 4-year average:

	Current	4-Year Average
P/S Ratio	2.9	2.9
P/B Ratio	2.2	2.3

From the above, it looks like The Simply Good Foods Company is trading at a slight discount to its 4-year average, due to its slightly-lower-than-average P/B ratio.

My ‘fair value price’ of the company based on its 4-year valuations is at US$36.76 – at its current traded price of US$35.67, it is trading at a 3.0% discount.

Closing Thoughts

The Simply Good Foods Company has a simple-to-understand business – where it retails nutritious snacks in North America.

Looking at its financial performances and debt profile, while revenue continues to climb, the slowing growth rate alongside a declining gross profit margin raises concerns, even though net profit and Return on Equity are at 5-year highs. Despite being in net debt, the company’s financial health is improving due to reduced borrowings.

At its current traded price of US$35.67 (as at market close on 16 February 2024), it is trading at a small 3.0% discount to its ‘fair value price’ of US$36.76 (which I computed based on its 4-year valuations).

Finally, do note that the company does not pay out any dividends.

With that, I have come to the end of my review of The Simply Good Foods Company. As always, I do hope the information presented in this post have given you a good understanding of the company (both the good and the ‘not so good’ points). Also, the contents above does not represent any buy or sell calls for the company’s shares. You are strongly encouraged to do your own due diligence prior to making any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of The Simply Good Foods Company.

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