3 Reasons to Avoid FLO and 1 Stock to Buy Instead

Flowers Foods’s stock price has taken a beating over the past six months, shedding 24.3% of its value and falling to $14.85 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Flowers Foods, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Flowers Foods Not Exciting?

Even though the stock has become cheaper, we're cautious about Flowers Foods. Here are three reasons there are better opportunities than FLO and a stock we'd rather own.

1. Demand Slipping as Sales Volumes Decline

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Flowers Foods’s average quarterly sales volumes have shrunk by 1.3% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

2. Weak Operating Margin Could Cause Trouble

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Flowers Foods was profitable over the last two years but held back by its large cost base. Its average operating margin of 5.6% was weak for a consumer staples business. This result is surprising given its high gross margin as a starting point.

3. EPS Trending Down

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Flowers Foods, its EPS declined by 1.4% annually over the last three years while its revenue grew by 3.7%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Flowers Foods isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 13.5× forward P/E (or $14.85 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of Flowers Foods

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