Everybody loves chocolate. Okay, well if not chocolate then at the very least chewing gum, or salty snacks, or pouring lots of syrup on their morning pancakes. What’s even better than that though? When chocolate helps us make money, obviously. If you’re still wondering what we’re talking about, we’re here to look at the share performance of the iconic Hershey’s Chocolate. The stock has outperformed S&P 500 (the index it is listed on) by more than 40% over this year so far, and in this article we will talk about why that happened and what the next few months might taste like.
S&P 500, an abbreviation of the Standard and Poor’s 500, is a market index listing the 500 most valuable American companies. Pretty much all of these companies have fared poorly throughout 2022, leading the S&P 500 Index to sink 18% over the last year. Take a look.
Back in January, it looked like S&P 500 actually had the potential for a solid 2022. There was a moment when pandemic restrictions were being lifted one by one, and so economies around the globe started to rebound from the fallout caused by COVID-19.
But, in February 2022 the economy got handed a new game-changer. The military conflict between Russia and Ukraine destroyed hopes for a post-pandemic recovery – you can literally see the inflection point on the chart.
The conflict caused an unprecedented energy crisis at a time punctuated by severe and wide-spread supply chain constraints. Inflation rates had been steadily rising around the world, and the energy crunch exacerbated that in a big way. The US is no exception here – in summer 2022 inflation in the region level 8.6%, making it a 40-year record.
So, the Fed did what it does best: it began hiking interest rates, and every one of those hikes sent ripples through the market.
While all that’s going on, the markets fall into extreme turbulence that seems to know no bounds – except Hershey, whose stock takes an upturn.
The following chart is a comparison between Hershey and the S&P 500 – we don’t need to say much else for you to notice how big the difference is, it’s pretty clear.
This growth did not occur only in the last 12 months. Let’s look at the changes in Hershey over the last five years.
The stock saw an increase of over 100% in that time. Looks like people are obsessed with Hershey’s. Which is fair, it’s delicious, let’s be honest, but it’s share price action is about much more than that and is slightly more of a complex explanation.
Hershey Co. engages in the manufacturing and marketing of products that are chocolate or candy based. Its brands include famous names like Hershey’s chocolate itself, Reese’s and Kisses, as well as some lesser-known names.
The strength of the brand itself certainly gives Hershey an opportunity to raise the price of its products to counter the effects of an economic downturn, which we can safely say we’re in right now. At the same time, the company also increased the number of sales points, cut the costs of cacao while inflation broke loose, ramped up production, and added new sales units like salted snacks.
The decisions made by Hershey’s management permit the company to enlarge its profit margins for 10 more years from 22.9% at the end of 2021. At the same time, Hershey is a dividend growth stock and its business doesn’t depend on seasons, they are non-cyclical, which is a bonus in any environment. So, there are multiple factors for investors to consider in this company.
But, every rose has a few thorns. Hershey’s P/E is sitting at about 29 – which is pretty high – and that might be an inhibiting factor for the future rise of its stock price.
Even if Hershey isn’t able to continue on its impressive growth trajectory, the stock is often seen as a solid investment given the strength of its business performance and fundamentals. These are especially important factors amid an unstable market in the US – a market that experts believe is still overvalued even after the declines of 2022.
The general forecast for Hershey by analysts around the world is +4.5% for the next 12 months – and don’t forget about the tasty dividends. More important than the tempting taste of chocolate and gains though, is to make sure you conduct your own analysis before adding this or any other stock to your portfolio.
