Simply Good Foods (NYSE:SMPL) is set to report earnings on Wednesday, January 6 before the market opens. The expectations are for earnings of approximately 21 cents per share on revenue of $209.72 million. While those numbers are considered weak after delivering strong earnings in late October, some context is needed.
A good chunk of the company’s strong earnings was due to the company’s acquisition of Quest Nutrition. So while the results will disappoint from the company’s prior quarter, the revenue number would be a 37% year-over-year (YOY) gain.
However, I couldn’t blame investors for being a little cautious. The small-cap stock is coming down off a late 2020 surge that pushed it, briefly, to record levels. And Simply Good Foods is competing in a sector that is not known for growth.
But Simply Good Foods remains a solid bet as we enter into 2021 and there are a few reasons for that.
The Pandemic Is Not Over
Don’t get me wrong. Hope has turned into actual help as multiple vaccines are beginning to be mass-produced. But it will take some time before the vaccines will be available in the quantity needed to mark an end to the pandemic.
In the meantime, many fitness facilities remain closed and millions of Americans remain at home. And coming out of the holiday season, there are likely to be a few pounds that need to be shed. That’s where Simply Good Foods comes in.
New Year, New You
For the uninitiated, Simply Good Foods is the parent company of the Atkins brand of meals, snacks, and beverages. The company saw YOY weakness in Atkins sales in the previous quarter. However, the company saw an increase in digital sales. That’s significant because it does seem likely that many consumers will be continuing to shop from home even after the pandemic ends.
If the company’s revenue was down from the prior quarter, it’s largely because many people’s diets went out the window as the holidays approached. But a new year always brings new attention to resolutions. And one of the most common resolutions is to lose weight and take steps to develop a healthy lifestyle.
This represents an opportunity for investors looking for a short-term stock to buy. Simply Good Foods is likely to drop after earnings tomorrow. The stock is down 7% in the first two trading days of the new year.
A Recent Analyst Estimate Gives a Bullish Price Outlook
If you’re looking for yet another reason to keep SMPL stock on your radar, consider this. An analyst from Goldman Sachs (NYSE:GS) gave Simply Good a bullish price target of $34 per share as recently as $34 per share. And even though the consensus price target for the stock shows a slight decline from its current level, the stock is a consensus buy.
What should that tell you? It likely means that analysts view the stock as a little overbought at its current level, but that it could be an intriguing buy-on-the-dip opportunity. This is supported by the company’s stock chart that shows a relative strength indicator (RSI) that is sitting around 68, suggesting that the stock should have some downward price movement.
However, the stock’s 50-day moving average is comfortable above the 200-day moving average which suggests that the stock still has room to climb higher.
How to Play SMPL Stock After Earnings?
As you would expect, volume is strong for Simply Good stock heading into earnings. But with earnings and revenue expected to come in lower from the prior quarter, many investors will be interested to hear the company’s forward guidance.
However, I see the start of a new year as being a strong catalyst for the stock. And as you combine that with an increase in digital sales, SMPL stock looks like a good buy-on-the-dip candidate.
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