The Simply Good Foods Company (SMPL): A Bear Case Theory

We came across a bearish thesis on The Simply Good Foods Company on Valueinvestorsclub.com by maggie1002. In this article, we will summarize the bulls’ thesis on SMPL. The Simply Good Foods Company’s share was trading at $28.66 as of September 3^rd. SMPL’s trailing and forward P/E were 20.05 and 14.71, respectively according to Yahoo Finance.

The Simply Good Foods Company (SMPL) presents a compelling short thesis driven primarily by ongoing challenges in its Atkins business, which represents roughly 30% of net sales and continues to decline despite management’s revitalization efforts. SMPL operates as a “nutritious snacking platform,” encompassing three main brands: Quest, Atkins, and OWYN, with Quest and OWYN positioned as higher-growth drivers. However, the Atkins segment, historically a fad-to-franchise brand with a peak in the early 2000s, has shown persistent deceleration with FY 2024 sales down 6.6% and quarterly trends worsening, suggesting structural headwinds.

While Quest maintains brand strength and growth, its rate of top-line expansion is moderating amid intensifying competition, particularly from established players and newly launched protein bar brands that leverage low barriers to entry, aggressive promotions, and distribution deals. OWYN, acquired for $282 million, is still early in its growth trajectory, with margins expected to be materially lower than Atkins.

SMPL’s overall sales mix is highly concentrated in North America, with mass retailers and e-commerce channels accounting for over half of sales. Despite management’s focus on innovation, R&D spend remains low relative to peers, and promotional intensity has increased due to competitive pressure. Industry consolidation and low barriers to entry amplify competitive risk, pressuring margins and shelf space, especially in e-commerce and club channels. The Company’s long-term guidance of 4-6% sales growth and slightly higher EBITDA growth is increasingly questionable given the structural headwinds from Atkins and the margin differential for OWYN growth.

The equity lacks defensive or growth appeal within consumer staples, with an ROIC of 8%, no dividend, and consensus earnings growth of ~8%. The combination of accelerating decline at Atkins, moderating Quest growth, margin pressure, and valuation risks creates a high probability of 10-15% downside from current levels, with potential catalysts including further deterioration in Atkins’ rate of change or disappointing operational execution across the portfolio. SMPL’s strong balance sheet may prompt additional acquisitions, but these may not offset underlying structural challenges.

Previously we covered a bullish thesis on The Simply Good Foods Company (SMPL) by Stock Analysis Compilation in December 2024, which highlighted its asset-light model and strategic acquisitions of Quest and OWYN. The company’s stock price has depreciated approximately 26% since our coverage, as the thesis didn’t play out. Maggie1002 shares a contrarian view, emphasizing structural challenges at Atkins and moderating growth at Quest.

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Disclosure: None.