Is HSY Stock's 3.4X P/S Still Worth It? Time to Buy, Sell or Hold?

Core Insights - Hershey Company (HSY) is facing challenges with a high forward price-to-sales (P/S) ratio of 3.35 compared to the industry average of 2.17, indicating high investor expectations for future earnings growth, which may not be sustainable [1] - The company's stock has declined by 1.4% over the past six months, underperforming the industry and broader market indices [1] - A significant decline in North American confectionery net sales by 20.7% in Q2 2024 highlights the impact of reduced consumer spending and changing purchasing habits [2] - Hershey's gross margin has contracted by 200 basis points year over year to 43.2%, primarily due to rising input costs, particularly for cocoa and sugar [4] - Management has revised net sales growth expectations for 2024 down to approximately 2%, with adjusted earnings per share (EPS) projected to decline slightly to a range of $9.49-$9.59 [5] Company Performance - Hershey's stock performance has raised concerns about its ability to meet elevated market expectations, as evidenced by its trailing performance compared to the Zacks Consumer Staples sector and S&P 500 [1] - The convenience channel, a key sales driver for Hershey, has shown notable weakness, impacting overall sales growth [2] - The Ready-to-Eat popcorn category, including Hershey's SkinnyPop brand, is under pressure, with slower growth attributed to changing consumer preferences and increased competition [3] Financial Outlook - The adjusted gross margin is expected to face ongoing challenges due to inflation outpacing pricing actions and productivity improvements [5] - The Zacks Consensus Estimate for HSY's EPS has declined for both the current and next fiscal years, reflecting market concerns [5] - Without a clear catalyst for improvement, Hershey's stock may continue to face downside risks [6]