Hershey trades at $165.35 per share and has stayed right on track with the overall market, losing 11.1% over the last six months while the S&P 500 is down 7.3%. This might have investors contemplating their next move.
Following the drawdown, is now an opportune time to buy HSY? Find out in our full research report, it’s free.
Why Does Hershey Spark Debate?
Best known for its milk chocolate bar and Hershey's Kisses, Hershey (NYSE: HSY) is an iconic company known for its chocolate products.
Two Things to Like:
1. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.
Hershey has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 24.4%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Hershey has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.5% over the last two years.
One Reason to be Careful:
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.
Hershey’s average quarterly sales volumes have shrunk by 2.1% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
Final Judgment
Hershey’s merits more than compensate for its flaws. With the recent decline, the stock trades at 23.1× forward price-to-earnings (or $165.35 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More Than Hershey
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