Tootsie Roll Industries, Inc. (TR): A Bull Case Theory

We came across a bullish thesis on Tootsie Roll Industries, Inc. on WorldlyInvest’s Substack. In this article, we will summarize the bulls’ thesis on TR. Tootsie Roll Industries, Inc.'s share was trading at $41.12 as of September 28th. TR’s trailing P/E was 33.04 according to Yahoo Finance.

Tootsie Roll Industries (TR) presents a cautionary case for investors who rely on brand reputation and surface-level financials. The century-old candy company, known for Tootsie Rolls, Tootsie Pops, and Dots, boasts a debt-light balance sheet and consistent profitability, but closer inspection reveals multiple red flags. The company is family-controlled, with Chairwoman and CEO Ellen Gordon and her family holding over 70% of Class B shares, granting near-total control while still collecting outsized compensation, including corporate perks, despite a low-growth business.

Executive incentives focus on short-term metrics like EPS, net income, and sales growth, rather than durable value creation, encouraging financial engineering over sustainable growth. TR maintains $527 million in cash and investments, largely earmarked for compensation obligations rather than innovation or expansion, while stock buybacks occur at elevated valuations, inflating EPS without improving fundamentals. Accounting practices further obscure performance: LIFO inventory disclosures are minimal, depreciation assumptions are aggressive, and operating cash flow inconsistently tracks reported earnings.

Additional risk stems from a multi-employer pension plan, which remains underfunded and could impose substantial obligations if conditions worsen. On an Earnings Power Value basis, TR’s intrinsic value is approximately $13 per share, far below its current $39 market price, suggesting nearly 67% downside. Despite its iconic brands and stable headline metrics, TR illustrates how opaque accounting, misaligned incentives, and weak reinvestment can mask underlying fragility, making it a high-risk investment and a clear reminder that strong branding and a clean balance sheet alone do not equate to long-term value creation.

Previously we covered a bullish thesis on Mondelez International, Inc. (MDLZ) by Daan Rijnberk in November 2024, which highlighted the company’s strong brand portfolio, market share in chocolate and biscuits, and resilient operational execution. The company's stock price has depreciated approximately by 2.2% since our coverage. The thesis still stands as Mondelez retains long-term growth potential. WorldlyInvest shares a contrarian but emphasizes Tootsie Roll’s governance, accounting, and reinvestment risks despite iconic brands.

Tootsie Roll Industries, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held TR at the end of the second quarter which was 10 in the previous quarter. While we acknowledge the potential of TR as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.