Three Predictions for Hershey Co (HSY) Stock

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Prediction No. 3: All good things must come to an end
Those are some pretty big earnings that analysts are expecting from Hershey Co (NYSE:HSY) — but they don’t hold a candle to what Hershey stock has delivered in the past. Over the past five years, this company has delivered compounded annual earnings growth of more than 30% — versus low-single-digit gains at both Mondelez and Tootsie Roll Industries, Inc. (NYSE:TR).

It’s performance like this that has analysts thinking the good times will continue for Hershey, and it has investors anteing up nearly 29 times earnings for Hershey stock. And that would be fine if Hershey’s earnings kept on growing at 30%. But for most companies, that’s awfully hard to do — and even Hershey’s strong expected earnings growth over the next five years doesn’t add up to 30% future annual gains. It’s actually closer to 11%.

This is why, despite all the good Hershey Co (NYSE:HSY)’s done so far for its investors, despite its strong earnings of years past, and its prospects for continued growth in years future, I just don’t believe Hershey stock can hold on to its high valuation of today. Paying 29 times earnings for 11% growth at a food company simply isn’t rational. Hershey stock must fall.

The article 3 Predictions for Hershey Stock originally appeared on and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Berkshire Hathaway.

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