Recent performance and what it means for Tootsie Roll Industries (TR)

With no single headline event driving trading, Tootsie Roll Industries (TR) has moved largely on recent performance, including a share price of $40.52 and a market value of about $3b.

TR has eased in recent weeks, with the share price return down 5.42% over the past month. However, a 17.86% year to date share price return and 24.59% one year total shareholder return suggest momentum has generally been building over a longer horizon.

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So with Tootsie Roll trading around $40.52, an intrinsic value estimate that implies about a 14% discount, and a long history in confectionery, is this a patient buying opportunity, or is the market already pricing in future growth?

Preferred P/E of 30.5x: Is it justified?

Tootsie Roll Industries is trading at a P/E of 30.5x based on recent earnings, which sits above the broader US Food industry average of 18.1x but below the selected peer group average of 42.2x.

The P/E multiple compares the share price to earnings per share and is often used for established, profitable companies like Tootsie Roll, which reports net income of $99.655m on revenue of $735.61m. With current net profit margins at 13.5% compared with 12.4% last year and earnings growth of 11.9% over the past year, the market appears willing to pay a higher multiple for what it views as consistent profitability and improved margins.

Relative to the US Food industry, a P/E of 30.5x looks rich, suggesting investors are paying a premium compared to the sector in general. However, compared to a closer peer set trading around 42.2x, Tootsie Roll sits at a discount, which indicates the market is pricing it more conservatively than some direct comparables despite earnings growth that has outpaced the wider Food industry, which declined 14.7% over the same period.

Result: Preferred multiple of Price-to-Earnings of 30.5x (ABOUT RIGHT)

However, investors still need to weigh risks such as changing consumer tastes in confectionery and any pressure on margins from input costs or pricing power.

Another view: what does the cash flow say?

While the P/E of 30.5x suggests Tootsie Roll trades at a premium to the wider US Food industry, the SWS DCF model points the other way. With the stock at $40.52 versus a cash flow value estimate of $47.02, this approach frames TR as about 13.8% undervalued. Which lens do you trust more when earnings and cash flow disagree?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Tootsie Roll Industries for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this set of indicators seems conflicting to you, that is precisely why it can help to examine the details yourself and act promptly while sentiment is still developing, then cross check your conclusions against the 2 key rewards

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.