TWNK shares have a solid foundation and continue to increase market share
When I first searched for actions on my watchlist, Hostess brands (NYSE: TWNK) was not one that came to my mind. TWNK shares have risen more than 100% since the start of the pandemic. Most of that growth came in 2021. Since Hostess Brands is not paying dividends, I assumed that the company could face some tough compensation that would put a cap on stock price growth.
However, the company’s shares have risen 7% in 2022. This is no small success with many shares in the red. And Hostess just delivered a earnings report in which they crossed the top and bottom lines. But there is more. Both figures were higher in the same quarter last year.
This was the company’s ninth consecutive quarter with revenue growth of at least 9%. And he achieved this feat by keeping his margins. What draws me from this is that the company, so far, is able to pass on some of its rising costs to consumers.
Of course, this year more than most of the previous performances will not be enough to excite investors. So here are three reasons why I think TWNK’s actions should be on your watchlist.
At a pace to beat the wider market
In times of market volatility, it is important to learn the lessons of history. And I’m not talking about the old saw that stocks go up over time. They’ve done it and they’ll probably come back … someday. But since we don’t know when it will one day be, what I mean by history lessons has to do with expectations.
The last few years have been amazing for market participants. For example, the S&P 500 index rose 47% from late 2019 to late 2021. And Hostess Brands slightly outperformed the S&P 500. TWNK shares rose 50% in the same time period.
However, historically, if investors can get a 10% share price growth, they consider it a good year. This is something to keep in mind as institutional investors are revaluing the market.
By 2022, Hostess Brands has increased by 7% during the year. And the consensus estimate suggests that TWNK shares may have a 16% advantage. Citigroup (NYSE: C) was the last analyst to raise her target price for Hostess Brands. If the stock reached Citigroup’s target of $ 28 per share, it would be a 27% increase over current levels.
Not much overrated
For the past two years, it has become fashionable for investors to say that “fundamentals don’t matter.” If the recent market activity is proving anything it is that the fundamentals will always matter. This is a problem for most stocks because under traditional metrics many stocks remain overvalued. And the hostess is no exception.
With a price-to-earnings ratio (P / E) of 24.30, Hostess Brands is slightly overrated compared to the general sector. However, investors can also see that the price-to-earnings ratio (P / B) of the company (approximately 1.77) is slightly below the industry average.
Increased market share
Hostess Brands was the winner of the pandemic thanks to the snack at home. The company noted in its recent earnings call that this category continues to rise. And, in 2021 it brought the return of its convenience store business showing the point-of-sale items of a single service company. So it was good to see that during the first quarter of 2022, the company’s revenue and earnings continue to grow.
And at the company’s Investor Day presentation in March it announced that it was continuing to increase market share. One reason for this may be that the company has relatively less exposure to competition from private label brands.