B&G Foods Stock a Buy-Low, Sell-High Opportunity?
February 1, 2024
Why BGS Stock May Be Down But Not Out
Investing wisdom states to buy low and sell high, but in practice, you often see the opposite. Investors become more interested in assets that are already performing well and reaching new highs, and overlook (or become outright bearish on) assets when their prices are low.
This could be the case with B&G Foods Inc (NYSE:BGS).
B&G Foods stock continues to come under fire from investors. In early 2021, it traded as high as $39.04. Now, the stock trades at $9.62. This represents a decline of more than 75%.
Although B&G Foods stock does come with some risk, it’s certainly worth a look.
Headquartered in Parsippany, New Jersey, B&G Foods Inc manufactures, sells, and distributes shelf-stable and frozen foods—as well as household products—in the U.S., Canada, and Puerto Rico. (Source: “B&G Foods, Inc. (BGS),” Yahoo! Finance, last accessed January 18, 2024.)
Its wide range of food products includes frozen and canned vegetables, cooking oils, oatmeal, fruit spreads, canned meats and beans, spices, sauces, maple syrup, molasses, salad dressings, cookies, crackers, and pickles.
B&G Foods Inc’s products are sold under various brand names, such as “Cream of Wheat,” “Crisco,” Dash,” “Green Giant,” “Static Guard,” and “Sugar Twin.”
B&G Foods sells and distributes its products directly—and through a network of independent brokers and distributors—to supermarket chains, foodservice outlets, warehouse clubs, non-food outlets, and specialty distributors.
Why Did B&G Foods Stock Tumble?
As inflation hurts consumers, it also hurts businesses.
In 2022, B&G Foods Inc started warning investors that inflation and supply chain difficulties were making things challenging for the company. B&G Foods, however, tried to make pricing changes and recover from its higher costs. Sadly, by late 2022, its margins started to get thinner.
Moreover, the company has a decent-sized debt load. As interest rates started to increase, its interest expenses started to cut into its profits.
Fast-forward to 2023: in the third quarter, B&G Foods Inc reported a sales decline and a bigger loss.
That kind of news doesn’t usually sit well with investors, so their selling of the company’s shares was somewhat justified.
What’s Ahead for B&G Foods Inc?
While B&G Foods has faced headwinds, it’s been taking proactive steps to improve its financial situation. Over the past few months, in order to raise cash, the company has sold off some of its product lines that aren’t part of its core assets. Plus, it has issued some shares and even some long-term debt to raise even more cash.
This is good. It takes time for a company to get its financials in order, but as they get better, its stock price tends to reflect it. This could be the case for BGS stock.
At the moment, investors are so pessimistic about B&G Foods Inc that it’s hard to ignore. Consider this: B&G Foods stock trades at a price-to-sales ratio of 0.37, price-to-book ratio of 0.95, and price-to-cash flow ratio of 4.16. Essentially, investors are valuing each dollar of the company’s sales, equity, and cash flow at $0.37, $0.95, and $4.16, respectively.
As of this writing, the industry that B&G Foods belongs to has an average price-to-sales ratio of 0.51, price-to-book ratio of 3.59, and price-to-cash flow ratio of 15.55. (Source: “B&G Foods Inc,” CNBC, Last accessed January 18, 2024.)
For BGS stock to get valuations that are similar to those of its peers, its share price would have to increase by a lot.
B&G Foods Stock Still Provides Great Dividends
BGS stock’s price is down, the company’s financials haven’t been looking very strong, and there have even been dividend cuts (including near the end of 2022). Despite all this, income investors continue to get treated well by B&G Foods Inc.
In mid-November 2023, B&G Foods’ board of directors declared a dividend of $0.19 per share, for a yield of 7.79% (as of this writing). That represented the 77th consecutive quarterly dividend that B&G Foods stock has paid out. (Source: “B&G Foods Declares Regular Quarterly Dividend,” B&G Foods Inc, November 13, 2023.)
Here’s something to consider, too: as previously mentioned, B&G Foods has been working fairly hard to get its financials in order. If it’s successful, and the company gets back to being profitable and generating solid cash flow in a few quarters, will BGS stock’s dividend remain the same or will it rise?
Prior to all of its challenges, B&G Foods Inc paid dividends of $1.61 per share in 2022 and $1.90 per share in 2021. Before then, it had increased its dividends for several years.
Chart courtesy of StockCharts.com
The Lowdown on B&G Foods Inc
B&G Foods stock is a consumer defensive stock with a diverse portfolio of shelf-stable and frozen foods, plus household products. The company has recently run into some challenges, and this has resulted in BGS stock’s price trending lower and its dividend getting slashed.
However, there’s some light at the end of the tunnel. Investors who can be patient and are willing to take some risk could be rewarded really well over time. B&G Foods Inc’s share price could make a major comeback, and its dividends could grow.
