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Utz (UTZ): Buy, Sell, or Hold Post Q2 Earnings?

UTZ Cover Image

Over the past six months, Utz’s stock price fell to $12.25. Shareholders have lost 13.2% of their capital, which is disappointing considering the S&P 500 has climbed by 23.2%. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Utz, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Do We Think Utz Will Underperform?

Despite the more favorable entry price, we don't have much confidence in Utz. Here are three reasons you should be careful with UTZ and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

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.

The demand for Utz’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 1.7%. Utz Year-On-Year Organic Revenue Growth

2. Fewer Distribution Channels Limit its Ceiling

With $1.43 billion in revenue over the past 12 months, Utz is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Utz historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.3%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Utz Trailing 12-Month Return On Invested Capital

Final Judgment

Utz doesn’t pass our quality test. After the recent drawdown, the stock trades at 14× forward P/E (or $12.25 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.

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