Can Tootsie Roll Stay a Sweet Investment?

Shares of Tootsie Roll Industries (NYSE: TR  ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
Tootsie Roll is the latest in a line of consumer goods makers reaching new highs in recent weeks. Not because the stock is reaching uncharted territory, but because the stock is recovering from a lull over the past year.

The company has been slowly improving, seeing sales rise 3% to $108.1 million in the second quarter. Net income also rose nicely to $7.5 million from $6.5 million a year ago, largely due to a price increase pushed through during the quarter. But compared to other junk-food makers, the stock has been a real dog over the past five years. Hershey (NYSE: HSY  ) , Coca-Cola (NYSE: KO  ) , and PepsiCo (NYSE: PEP  ) have all outperformed Tootsie Roll over that time, the last two by a wide margin.

TR Chart

TR data by YCharts

On a fundamental basis you can see why the stock has languished. None of these companies has grown significantly in the past year, but they all have better returns on assets and they're trading at better valuations.

Company

Price/Book

Quarterly Revenue Growth

Return on Assets

Trailing P/E

Tootsie Roll 2.3 3.1% 4.3% 33.6
Hershey 15.1 6.7% 16.6% 24.8
PepsiCo 5.5 (2.2%) 8.4% 19.3
Coca-Cola 5.3 2.7% 8.4% 20.2

Source: Yahoo! Finance.

What's next?
The stock is up, in part, because the market thinks that eventually the company will have to sell out to compete with larger rivals. Candy buyouts have been all the rage in recent years but Tootsie Roll selling out might be a tall order. Melvin and Ellen Gordon, a married couple with a stranglehold on shares due to a dual class structure, control the company. CEO Melvin Gordon is in his 90s and has been at the helm for 50 years, keeping the company very secretive over that time. Ellen Gordon, president and chief operating officer, is 80, according to a Wall Street Journal article.

Given the company's structure, betting on a sale is risky at best. Given the company's rich valuation and slow growth I don't even think it can be seen as a great value.

The CAPS community doesn't seem to be high on the stock, either; it has a one-star rating and 21 All-Stars have given the stock an underperform rating. Tootsie Roll may be at a new high, but I don't see anything that will drive it significantly higher over the next year.

Interested in reading more about Tootsie Roll? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium enjoys a classic Tootsie Roll every now and again but does not own Tootsie Roll's stock or any other company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of Coca-Cola and PepsiCo. The Motley Fool has a disclosure policy.

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