What a brutal six months it’s been for Flowers Foods. The stock has dropped 21.2% and now trades at $16.20, rattling many shareholders. 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? Get the full stock story straight from our expert analysts, it’s free.
Why Is Flowers Foods Not Exciting?
Even with the cheaper entry price, we're cautious about Flowers Foods. Here are three reasons why we avoid 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 1.7% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
2. Core Business Falling Behind as Demand Declines
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
Flowers Foods’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 1.4% year on year. 
3. EPS Growth Has Stalled
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Flowers Foods’s flat EPS over the last three years was below its 4.4% annualized revenue growth. 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 doesn’t pass our quality test. After the recent drawdown, the stock trades at 13.9× forward P/E (or $16.20 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top digital advertising picks.
Stocks We Like More Than Flowers Foods
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