As consumer demand for healthier eating habits continues to rise, food companies tapping into the health and wellness trend are seeing significant growth.
Simply Good Foods, which sells a range of low-carb, low-sugar, and high-protein products, is one such company.
Despite this growth, the company’s stock has not fully reflected its performance.
At $36.47, Simply Good Foods’ stock is down by 8% this year, presenting a buying opportunity for investors, especially if the company continues to see strong sales in its popular products and successfully revitalizes its Atkins brand, according to MarketWatch.
Quest Nutrition acquisition aids growth
Simply Good Foods’ 2019 acquisition of Quest Nutrition has been instrumental in its growth, particularly as Quest has successfully tapped into the high-protein snack market.
Known for its protein shakes, powders, and bars, Quest has expanded its product range to include high-protein snacks like tortilla chips and cookies.
This diversification has helped the brand grow at high-single to double-digit annual rates and now accounts for more than half of Simply Good Foods’ overall sales.
In addition to Quest, Simply Good Foods acquired plant-based protein brand Only What You Need (OWYN) in June.
OWYN, which specializes in plant-based protein shakes, is expected to generate as much as $145 million in sales by fiscal 2025, accounting for about 10% of the company’s total revenue.
This represents a 20% year-over-year increase from 2024, underscoring the growing demand for plant-based nutrition.
Expanding market for active nutrition provides long-term growth
The market for “active nutrition” products, which include protein supplements and snacks, has been growing steadily.
In 2023, retail sales for these products surpassed $20 billion, with high-single-digit annual growth expected to continue over the next five years.
This growth is not just limited to bodybuilders or niche markets; active nutrition products are now mainstream, available at major retailers like Target and grocery stores nationwide.
Analyst John Baumgartner of Mizuho forecasts that this market segment will continue to see steady growth as these products become daily staples, rather than discretionary purchases.
The widespread availability of such products, paired with growing consumer interest in added nutritional benefits, presents a long-term growth opportunity for companies like Simply Good Foods.
Source: MarketWatch
Atkins brand faces challenges
Despite its growth in the high-protein segment, Simply Good Foods faces challenges with its legacy Atkins brand, which was once the flagship of the company’s weight-management offerings.
Atkins has struggled to maintain relevance in a crowded market where interest in weight loss diets has waned.
While Quest appeals to younger, active consumers, Atkins primarily caters to middle-aged individuals seeking weight loss solutions.
This demographic is shrinking, and the brand’s association with the “diet” concept has become a liability in an era where “dieting” is increasingly out of favor.
CEO Geoff Tanner, who joined the company in 2023, has focused on revitalizing Atkins, launching new products like wafer bars, gummy bears, and truffles.
The brand has also upgraded its Atkins Strong protein shake packaging.
However, it has proven to be a slow process, with Atkins sales declining by 5% in the latest quarter.
Simply Good Foods has acknowledged the difficulties surrounding Atkins and plans to focus on improving the brand’s return on investment in fiscal 2025.
While this may impact short-term sales, the company believes that these efforts are necessary to ensure Atkins remains a profitable and sustainable business in the long term.
Investor outlook
If Atkins can regain traction, Simply Good Foods could see substantial growth.
Despite its challenges, the company is trading at a lower valuation than its competitors, particularly BellRing Brands, a company that has seen its stock surge by over 180% in the past two years due to its focus on protein shakes.
Simply’s stock is trading at 19 times forward earnings compared to BellRing’s 33 times.
At present, Simply Good Foods’ stock is priced at its lowest since its 2017 IPO, even lower than during the pandemic selloff in 2020.
Analyst John Baumgartner believes the stock is currently undervalued, with excessive short-term negativity creating a disconnect between Simply and its competitors like BellRing Brands.
For investors seeking a value play in the nutrition space, Simply Good Foods could offer a compelling opportunity, especially as the company continues to capitalize on the growing health and wellness trend and revitalizes its key brands.
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