Sysco has avoided the margin compression suffered by chicken producers Tyson Foods, Inc. (NYSE:TSN) and Cal-Maine Foods Inc (NASDAQ:CALM) and which was more deeply felt by smaller food-service operator Nash-Finch Company (NASDAQ:NAFC) . (It is omitted from this chart due to its drop into outright negative operating margin territory (a decline of roughly 250% in two years.) However, fellow food-service company United Natural Foods, Inc. (NASDAQ:UNFI) has actually improved its margins, and restaurant chains both large and small (well, mid-size) have done an admirable job of holding the margin line in the face of rising input costs. So it appears that scale alone isn't enough to help SYSCO Corporation (NYSE:SYY) outrun the rising costs of its products.
However, scale does appear to be enough to attract yield-hungry investors to the stock, which is now neck and neck with United Natural for two-year share-price growth, despite the fact that only one of the two (it's not Sysco) has enjoyed EPS growth to match over the same period. Investors may be considering Sysco's international expansion as the key to future gains, but margins need to grow again to show investors that they aren't pursuing a dividend bubble. Sysco's valuation is at the highest it's been in five years -- including pre-crisis levels -- which implies that future growth may be more muted than many would like.
Putting the pieces together Today, SYSCO Corporation (NYSE:SYY) has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.
The article Is Sysco's Stock Destined for Greatness? originally appeared on Fool.com.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends Sysco.
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