Is Hershey's a Buy?

By Patricia Miller

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We take a look at chocolate maker, Hershey's, to see whether this is a 'buy' stock you should be adding to your portfolio, or avoiding at all costs.

The Hershey Company or Hershey’s as it is more commonly known is an American multinational company and one of the largest chocolate manufacturers in the world. 

There is much discussion in the financial world around investing in Hershey’s and whether it’s a good investment opportunity. We take a detailed look at the company, its legacy of success and how the future could look.

What is Hershey’s?

Founded in 1894 as the Hershey Chocolate Company, founder Milton S. Hershey had a vision to make chocolate accessible to everyone.

In 1900, the company launched its Hershey’s Milk Chocolate bars followed by Hershey’s Chocolate Kisses seven years later. Fast forward to 1973 and the first Hershey’s retail center opens in the form of Hershey’s Chocolate World. Multiple acquisitions including the H.B Reese Candy Company in the 1960s and Twizzlers in 1977 helped Hershey’s achieve $1 billion in annual sales in 1979.

Financial and metrics

Hershey Co went public with the launch of its Initial Public Offering (IPO) in 1927 and NYSE: HSY has traded on the NYSE since. 

Continued success and acquisitions have seen Hershey’s grow from strength to strength, its most recent acquisitions in 2021 include Lily’s Sweets and the announcement that the company has entered into a definitive agreement to acquire Dot’s Pretzels LLC, the owner of Dot’s Homestyle Pretzels.

As one of the largest chocolate manufacturers in the world and a member of the World Cocoa Foundation, Hershey’s has a market capitalization of 38.65B USD and a P/E ratio of 27.25. Over the last 12 months, its share price has increased by 25% from $149 per share in December 2020 to $187 per share in December 2021.

With a dividend yield of 1.92%, investment in Hershey’s could provide a good return in regular dividend payments in addition to any growth from increasing share prices. The company has a price-to-sales ratio of 4.40, an operating margin of 22.85% and return on equity is currently 62.28%, while the trailing twelve month revenue is $8.8B

Consistent high performance on the market and a good dividend yield of 2.03% is making Hershey’s an attractive long-term investment opportunity to investors and traders. It is widely considered that Hershey’s provides a sound investment opportunity owing not only to the potential of good returns but also to good dividend payouts.

Is Hershey’s a good investment?

Hershey’s long history and legacy combined with its strong brand and secure position as one of the world’s largest manufacturers of chocolate all contribute to what makes Hershey’s a good investment choice. 

Numerous acquisitions over the years have enabled Hershey’s to diversify its product offering. Once purely a chocolate company in its early years, Hershey’s has added baked goods products such as cookies and cakes as well as milkshakes and popcorn to its catalogue of products.

It’s not only Hershey’s success as a company that makes it attractive to investors, the company’s commitment to the community, diversity and sustainability has helped it establish its place as a desirable employer and ethical company.

2012 was a particularly good year for the Hershey’s Company as they were named to The Civic 50 as one of America’s most community-minded companies, a position it still holds as of 2021, and also to the Dow Jones Sustainability World Index as a leader in global sustainability.

In 2019, Hershey’s was recognized as #35 on DiversityInc Top 50 Companies for Diversity as well as featuring on the Dow Jones Sustainability Index for the seventh consecutive year. As of 2021, the company has jumped to #10 on DiversityInc Top 50 Companies for Diversity and has also achieved 1:1 aggregate gender pay equity for salaried employees in the U.S.

What are the risks of investing in Hershey’s?

However, some investors and financial analysts are a little more pessimistic when it comes to buying Hershey’s stock. One of the biggest reasons for this is the fact that as a chocolate manufacturer, the company is exposed to commodity pressure in cocoa.

To date, cocoa prices have been stable and healthy, and Hershey’s is in a good position to pass rising costs onto the consumer, but some believe that commodities can be an unpredictable game for investors.  

It is also worth noting that Hershey’s has lowered the quality of some of their inputs to expand their margins, which may not be noticeable by the consumer, but is not widely accepted as a sustainable strategy.

Another concern is the consumer shift towards grocery delivery, while this shift was already happening it has certainly been accelerated by the impact of the global pandemic. It is anticipated that the shift to online shopping could in time lead to a decrease in sales for not only Hershey’s but all non-essential grocery brands.

For example, a large portion of Hershey’s sales will be down to consumers seeing their products on the shelf when they visit the grocery store, but when shopping online they would have to actively search for the products. Also the consumer trend of trying new brands when shopping online rather than sticking with the same brands when shopping in-store could have an impact on sales.

Is Hershey’s stock a buy?

Whether investment in Hershey’s stock is a good idea will come down to the individual investor’s objectives. Those looking for a long-term investment that offers the potential of good returns and dividends may find that Hershey’s stock is a good fit.

However, those looking for quick short-term returns may not deem Hershey’s stock to be a sound investment. As always, every investment presents a risk, and the changing consumer trends could present a greater risk when investing in Hershey’s stock.

It is always recommended that investors conduct thorough analysis and research to ensure they are making the best investment decisions.

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In this article:

Topics:
Food Products
Food Retail
Industries:
Consumer Discretionary
Companies:
Hershey

Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Patricia Miller does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Patricia Miller has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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