Buy Simply Good Foods: A Low-Carb Stock Opportunity

As consumers increasingly prioritize healthier eating habits, food companies that align with these trends stand to reap significant rewards. One such company, Simply Good Foods, is a leading player in the low-carb, low-sugar, and high-protein product market. Despite its rapid growth and robust product line, Simply Good Foods’ stock price does not accurately reflect its underlying value, currently trading at around $36.47, down 8% this year. For savvy investors, this creates an appealing buying opportunity as Simply Good Foods continues to leverage its strengths in a booming sector.

Capitalizing on the Health and Wellness Trend

The health and wellness movement in the food industry has evolved significantly. Today, consumers are not just focused on eliminating unhealthy ingredients from their diets; they are actively seeking products that enhance their nutritional profiles. High-protein foods have emerged as a top priority, and Simply Good Foods’ Quest Nutrition brand—acquired in 2019—has been pivotal in this growth narrative.

Quest provides a wide array of protein offerings, including shakes, powders, and bars, but has also ventured successfully into high-protein snacks like tortilla chips and cookies. This brand now accounts for over half of Simply Good Foods’ sales and has expanded at robust high-single to double-digit annual rates.

Expanding Product Lines and Market Share

In June, Simply Good Foods made a strategic acquisition of Only What You Need (OWYN), a growing brand specializing in plant-based protein shakes. With anticipated sales reaching up to $145 million in fiscal 2025, this addition is projected to contribute significantly—around 10% of overall revenue—to Simply’s portfolio, while also reflecting a 20% increase from the previous year. Importantly, these brands thrive not necessarily by taking market share from competitors but within a rapidly growing segment. The retail sales of “active nutrition” products surpassed $20 billion in 2023 and are projected to maintain a high-single-digit annual growth rate for the next five years, as these health-focused options become staples in everyday diets.

A Bright Future for High-Protein Products

Industry analysts are optimistic about the ongoing research into functional ingredients that enhance consumer health—think lactoferrin for increased iron absorption and various proteins that help regulate glucose. This scientific backing provides a solid foundation for not just marketing, but tangible product innovation that will bolster growth in the coming years.

Breaking Down Simply Good Foods’ Stock Valuation

Despite the positive trajectory associated with the burgeoning health food market, Simply Good Foods’ stock remains undervalued. Over the last year, shares have dropped 18%, even as the company reported an impressive 20% growth in top-line sales during the same timeframe. The primary obstacle lies with the legacy brand Atkins, long synonymous with weight management products. Unfortunately, Atkins has seen consistent declines due to an inability to compete effectively within an expanding and crowded market.

While Quest captures the attention of younger, health-conscious consumers, Atkins is still trapped in a perception associated with aging weight-loss trends. Consumer sentiments have shifted, as the term “diet” carries a negative connotation in today’s health-and-wellness discourse. Within this context, newly appointed CEO Geoff Tanner faces the challenge of reinvigorating the Atkins brand, focusing on innovative new offerings like wafer bars and protein shakes. However, as recent sales data reflect a 5% decline year-over-year, this transformation takes time and resilience.

Valuation Comparisons and Future Prospects

Despite struggles with the Atkins line, Simply Good Foods remains an appealing investment when compared to rivals such as BellRing Brands. BellRing is often favored for its singular focus on protein shakes—comprising 85% of its revenue. This shift has sky-rocketed BellRing’s stock, which has climbed over 180% in the last two years. However, at a valuation of 33 times forward earnings and four times forward sales, investors may find BellRing too expensive in a climate where value stocks offer potential rewards.

In contrast, Simply Good Foods trades at a more attractive 19 times forward earnings and 2.4 times forward sales, levels not seen since its public listing in 2017—similar to the valuations during the pandemic sell-off. As analysts observe, there exists an exaggerated short-term negativity that creates a significant value gap between Simply Good Foods and its peers.

Conclusion: A Contrarian Buy

For investors with an eye towards value in the food sector, Simply Good Foods is a compelling opportunity. While its legacy brand struggles indicate short-term challenges, long-term growth potential remains within reach as market dynamics shift in favor of healthier eating. With strategic acquisitions and a commitment to revitalizing its core brands, Simply Good Foods is poised for a recovery, making it a classic contrarian buy that shouldn’t be overlooked.