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This article features The Hershey Co., Helen of Troy Ltd., Jarden Co., and Lifetime Brands, Inc. William Bias has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
A well-recognized brand can do wonders for any business. The mere mention of certain companies conjures up images of their main product lines. A brand name creates loyalty among customers and keeps them coming back. It also creates good word of mouth which encourages growth. Of course, a well-recognized brand portfolio does not necessarily warrant your investment dollars. Their overall fundamentals need to be weighed before determining investment worthiness.
The candy company
Confectioner giant Hershey's (NYSE: HSY ) probably makes you think of the Hershey's chocolate bar. It also sells Kit Kat, Reese's, and Mounds. Recent price increases didn't stave volume. Revenue and free cash flow increased 9% and 214% respectively in 2012. Hershey's sits on a solid balance sheet with cash clocking in at 70% of stockholder's equity. Its long term debt to equity ratio resides in the steep range at 146%, but operating income exceeds interest expense by 12 times. The standard rule of thumb for margin of safety rests at five times or more. Hershey's continues forward with product innovation and acquisitions as well as international expansion . Hershey's said its miniature versions of its popular products such as the Kit Kats Minis, Twizzlers Bites, and Jolly Rancher Bites will drive sales in the U. S. It also plans to introduce more of its products in China and Brazil. Currently, Hershey's valuation resides in the high range trading at 29 times earnings versus the overall S&P 500 of 19 . It might pay for you to wait for a market correction before buying in.
Camping gear, etc.
Consumer goods company Jarden (UNKNOWN: JAH.DL ) sells outdoor, consumer goods, branded consumables, and creates process solutions. You may recognize some of the branded labels Jarden utilizes via license or ownership such as Coleman, Oster, Mr. Coffee, Crockpot, and Sunbeam. The largest chunk of Jarden's revenue, 40% , comes from outdoor solutions. Last year, Jarden's revenue remained even while free cash flow increased 9% . Jarden grows through internal volume growth and through the acquisition of major brands. Recently, Jarden purchased Yankee Candle from the Private Equity Firm, Madison Dearborn Partners, LLC . The purchase will be financed with cash, debt, and a stock sale . Looking at the most recent balance sheet, cash stands at a decent 49% of stockholder's equity; however, it's towering debt of 211% of stockholder's equity before (emphasis mine) the Yankee Candle transaction stands as a looming fundamental threat. Operating income only exceeds interest expense by four times. Investors should wait to see how the Yankee Candle business contributes to this company's revenue and free cash flow before investing.
Hello Dr. Scholl
Helen of Troy (NASDAQ: HELE ) sells branded items like Brut, Pert, Braun, Revlon, and the famous Dr. Scholl's foot padding. Overall Helen of Troy's revenue increased 9% while free cash flow declined 19% due mainly to a swelling of accounts receivable . Its balance sheet leaves room for improvement. Helen of Troy's cash and long term debt to stockholder's equity stood at just 1.4% and 17% respectively . Its operating income exceeds interest expense by 11 times. It plans on utilizing supply chain, sourcing, product innovation and cost reduction measures to improve profitability . Currently this company trades at a P/E ratio of 13, below the S&P 500 P/E of 19 making it relatively cheap. While the market risk of this company resides in the low range, its low amount of cash gives little margin of error for bad times.
Lifetime Brands (NASDAQ: LCUT ) sells branded kitchen items such as KitchenAid, Cuisinart, and Farberware. Looking under the hood at the company's fundamentals, Lifetime Brands revenue and free cash flow increased 10% and 145% respectively last year. Its balance sheet resides in the subpar range with cash and long term debt to equity clocking in at a minuscule 1% and 50% respectively . Operating income exceeded interest expense by five times. Lifetime Brands trades at a cheap 11 times earnings. However, you may want to look toward a company with a better balance sheet. Company management predicts a 5%-7% increase in revenue for FY 2013 which is entirely possible given the improving U.S. and European economy .
On the whole, Hershey's represents the best publicly traded business in this list as far as underlying financials; however, it sports the highest P/E ratio. The remaining three companies sport fairly weak balance sheets stemming from low cash amounts. You may want to consider paying a higher price for Hershey's if you don't think its stock price won't slide anytime soon.