1 Consumer Stock on Our Watchlist and 2 Facing Challenges

Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. On the other hand, they usually underperform during bull runs, and this paradigm has rung true over the past six months as the sector’s -7.4% decline paled in comparison to the S&P 500’s 17.2% gain.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one consumer stock boasting a durable advantage and two we’re steering clear of.

Two Consumer Staples Stocks to Sell:

Lamb Weston (LW)

Market Cap: $8.38 billion

Best known for its Grown in Idaho brand, Lamb Weston (NYSE:LW) produces and distributes potato products such as frozen french fries and mashed potatoes.

Why Does LW Give Us Pause?

1. Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
2. Gross margin of 23.9% is an output of its commoditized products
3. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 5.3 percentage points

At $59.94 per share, Lamb Weston trades at 19x forward P/E. Check out our free in-depth research report to learn more about why LW doesn’t pass our bar.

Simply Good Foods (SMPL)

Market Cap: $1.90 billion

Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.

Why Is SMPL Risky?

1. Smaller revenue base of $1.45 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.9 percentage points

Simply Good Foods’s stock price of $19.17 implies a valuation ratio of 10x forward P/E. Read our free research report to see why you should think twice about including SMPL in your portfolio.

One Consumer Staples Stock to Watch:

Celsius (CELH)

Market Cap: $11.27 billion

With its proprietary MetaPlus formula as the basis for key products, Celsius (NASDAQ:CELH) offers energy drinks that feature natural ingredients to help in fitness and weight management.

Why Is CELH Interesting?

1. Remarkable 54.2% revenue growth over the last three years demonstrates its ability to capture significant market share
2. Earnings per share grew by 321% annually over the last three years, massively outpacing its peers
3. CELH is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute

Celsius is trading at $43.72 per share, or 31.5x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.

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