Wednesday, November 11, 2020

A Small Cap Equity holding: The Simply Good Food Company (SMPL, $20.28): “Simply Too Good To Pass Up” by: Michael Ribaudo, AIM Student at Marquette University

  The Simply Good Food Company (SMPL, $20.28): “Simply Too Good To Pass Up”

By: Michael Ribaudo, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• The Simply Good Food Company (NASDAQ: SMPL) develops, markets, and sells healthy snacking options such as nutritional bars, ready-to-drink shakes, snacks, and frozen meals. The company sells through e-commerce platforms and retailers mainly in North America, as well as Australia, New Zealand, and the Netherlands. SMPL was founded in 2017.

• SMPL offers products under the brand names, Atkins, Quest, and Simply Protein.

• Compared to 2019 sales have grown 56% in 2020.

• The healthy snack market is expected to grow to $108.11 billion by 2027 which is about a 4.2% growth rate. According to Health Focus International, 73% of consumers are seeking to lower their carbohydrate intake.

• The company continues to grow by acquiring other healthy food companies like Quest in 2019.

Key points: A very focused snacking portfolio provides SMPL with a leading position in retail aisles. This results in ample shelf space. SMPL appeals to consumers interested in an active lifestyle as well as customers interested in weight management. 

The effects of COVID-19 initially hurt this company. After the brief pantry loading period in mid-March, SMPL saw a decline in shopping trips for nutritional “on-the-go” snacks. However, as home confinement restrictions weakened, shopping trips improved from their lowest points and interest in active nutrition improved.

On September 24th, 2020 SMPL sold assets relating to the Simply Protein brand. This transaction enabled the full focus of resources on brands like Atkins, and Quest. Atkins and Quest had been the most profitable business segments and placing renewed focus on them will greatly improve the future business operations of SMPL.

SMPL’s in-house product development experience coupled with outsourced manufacturing allows SMPL to compete with the everchanging healthy foods market. Management believes they can use their relationships with their customers and distributers, to expand their snacking platform.

What has the stock done lately?

The performance of the stock over 52 weeks has seen a decline. Since this time last year the stock has declined ~19%. This may seem significant, but the COVID-19 pandemic has been a major disruptor to SMPL. SMPL hit its 52 week low in mid-March at $14.08 which is 30.6% below its current share price of $20.28.

Past Year Performance: Sales grew 56% in fiscal year 2020 compared to FY2019. Despite the sales growth net income decreased (27%) for fiscal year 2020. The decline in net income resulted from unusual expenses due to the COVID pandemic, and additional interest expense due to increased borrowings. EBITDA grew 52.4% from the previous period. The company is growing at a fast pace. This growth rate is impressive, being that this is a relatively new company in a highly competitive market. SMPL’s 52 week range is $14.08- $28.95. They still have not gotten back to their pre pandemic stock value. 

Source: FactSet

My Takeaway

Although The Simply Good Food Company has some temporary drawbacks due to the pandemic, there is significant potential upside that can occur with this company. Since the addition to the AIM portfolio in May of 2020 with a target price at $26.36, the stock has increased ~12.9% from its initial purchase of roughly $17.66. Additionally, the company is projecting sales to grow in the next fiscal year by roughly $100 million. With increasing demand for healthy snacks, and a highly focused snacking portfolio with a concentration on the most profitable segments, and an end to this pandemic, I recommend holding this equity as part of the AIM portfolio.

Source: FactSet