Rumors have been circulating since August that Hostess Brands (TWNK) has been looking for a buyer. The latest update is that JM Smucker, the maker of Jif peanut butter, is preparing for a takeover that could cost as much as $5 billion.
Reuters first reported the news that the famous Twinkie manufacturer had been searching for a buyer a few months back, and since then, shares have rallied more than 27%. So far in Monday morning’s trading session, the stock is up nearly 20%.
Hostess has been around since 1930 but just turned public back in 2016 through the help of a private equity group Gores Group. The company currently sits at a value of around $3.7 billion – so JM Smucker is paying quite the premium. That being said, it’s only a quarter of the JM Smucker valuation.
From a financial standpoint, Hostess has been struggling recently. The company’s most recent quarter earnings report featured a revenue miss and profit troubles. Despite raising prices on its snacks to compensate for rising costs, it’s been tough sledding.
However, the company still sees things improving in the long term. It raised its full-year profit target and said it’s well positioned for attractive shareholder returns as it works relentlessly to build a premier, pure-play snacking company. This is, of course, what you would expect to hear from a brand that is trying to be acquired – true or not.
That being said, should you buy into the hype and invest in TWNK ahead of the acquisition being finalized? Or, should you avoid making a move until more concrete news comes out? We’ve taken a look at TWNK through the VectorVest stock analyzer and see 3 things you need to know.
Despite Excellent Timing, TWNK Has Poor Upside Potential and Safety
The VectorVest system simplifies your trading strategy by giving you clear, actionable insights in just three ratings: relative value (RV), relative safety (RS), and relative timing (RT).
Each of these ratings sits on a scale of 0.00-2.00, with 1.00 being the average. This allows for quick and easy interpretation - just pick safe, undervalued stocks with a strong positive price trend to win more trades with less work!
It gets even easier, though, as the system issues a clear buy, sell, or hold recommendation for any given stock, at any given time based on these ratings. As for TWNK, here’s what we’re seeing:
- Poor Upside Potential:The RV rating is a comparison between a stock’s long-term price appreciation potential and AAA corporate bond rates & risk. This offers much more valuable insights than a simple comparison of price to value alone. TWNK currently has a poor RV rating of 0.68 though, and is overvalued. The current value is just $14.70.
- Poor Safety: The RS rating is an indicator of risk and comes from a deep dive into a company’s financial consistency & predictability, debt-to-equity ratio, and business longevity. As for TWNK, the RS rating of 0.84 is poor as well.
- Excellent Timing: The one thing this stock has going for it right now is hype, as its surged more than 44% in the last month. The excellent RT rating of 1.71 is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year.
All of this works out to an overall VST rating of 1.22 - which is good. But is it enough to justify buying TWNK? Don’t play the guessing game or let emotion influence your decision-making. Get a clear answer on your next move through a free stock analysis today at VectorVest!
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VectorVest advocates buying safe, undervalued stocks, rising in price. As for TWNK, the stock has been climbing higher and higher as rumors of an acquisition loom large. The stock may have excellent timing, but its upside potential and safety are poor.
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