SMPL

We rate Simply Good Foods Co (SMPL) as a Reduce with a composite score of 47.2/100 at a current price of $17.30. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in value (78th percentile) and stability (76th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (17th percentile) and investment (31th percentile) tempers our overall conviction. We assign a Narrow Moat rating (43/100), Low uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Simply Good Foods Co holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 47.2/100 places it at rank #2455 in our full 7,333-stock universe. At $2.0B in market capitalization, Simply Good Foods Co is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 2%, though momentum at the 17th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 36% (-6.7pp vs sector) narrow to operating margins of 14% (+13.2pp vs sector) and net margins of 9.9%, yielding a gross-to-net conversion rate of 28%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $17.30, Simply Good Foods Co appears undervalued relative to its fundamentals. Our value factor score of 78/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 11.1x (a 50% discount to the sector median of 22.3x), EV/EBITDA of 7.0x (discounted to peers), P/B of 0.9x, P/S of 1.1x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to Simply Good Foods Co. The company exhibits strong financial stability with a beta of 0.47, conservative leverage (41% D/E), and a stability factor in the 76th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.47 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 76th percentile and quality factor at the 54th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (76th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Simply Good Foods Co's capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Simply Good Foods Co significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Simply Good Foods Co receives a Reduce rating with a composite score of 47.2/100 (rank #2455 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), Low uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 51/100.

Our analysis does not support a constructive view on Simply Good Foods Co at this time. The combination of the current quantitative profile, low uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.