TR - Tootsie Roll: Everything Seems To Be Already Priced In
2024-03-06 08:46:30 ET
Summary
- Tootsie Roll's stock is already priced according to its intrinsic value and lacks potential for upside in the medium term.
- The company has lower margins than ideal for a small, low-growth company, indicating operational challenges.
- Tootsie has a strong presence in the American market but struggles to develop its brand internationally, limiting revenue expansion.
My Thesis
My "Hold" thesis for Tootsie Roll ( TR ) is based both on my quantitative pricing methods, which indicate that the stock is already priced according to its intrinsic value, and on the analysis of operability and margins. The latter indicates lower margins than ideal for a small, low-growth company, which should be focused on keeping costs as low as possible. The lack of proportional adjustment of COGS with revenue occurred precisely during the period in which turnover increased, indicating that the company will not be able to maintain increasing margins in a scenario of increased turnover, as we are planning for 2024.
In my opinion, it would be safer to see the increase in the return on equity established in accordance with the improvement in margins, and not just by the increase in turnover. The company has no liquidity risk and its structure is extremely healthy. It is an interesting purchase when the price is appropriate, I see no window for a potential upside in the medium term, as the share is priced according to an implied growth of approximately 11%.
Introducing the company and qualitative analysis
According to the company's official history, Leo Hirshfield , an Austrian-Jewish immigrant to the United States, began his career in the candy business in New York in 1896. He founded Tootsie Rolls in 1907, naming the candy in honor of his daughter “Tootsie”. After his death in 1922, the company struggled until it was acquired by the Rubin family in 1935. Under Bernard Rubin, the company prospered, changed its formula and expanded its operations to Hoboken, New Jersey. Ellen Rubin Gordon has been the company's current president and CEO since 2015....
Tootsie Roll: Everything Seems To Be Already Priced In