Hershey (NYSE:HSY) might have beaten Wall Street's third-quarter projections, and it even might have raised its guidance for the full year, but that doesn't mean the market has to like it: Shares of the confectioner are down 4% since it released its results, and they're off 11% from their 52-week high from early September.

Let's see why the market is cautious about Hershey and whether investors should see this dip in value on the chocolatier as a sweet deal.

Chocolate bar

Image source: Getty Images.

Healthy snacks are key

The top and bottom line in the third quarter edged higher than what the analysts were expecting. Sales rose 2.6% to $2.13 billion, beating out forecasts of $2.12 billion, while earnings of $1.61 per share beat by a penny the consensus view of $1.60 per share and was 4% higher than what Hershey posted last year.

The snack maker now expects revenue to run 2.5% higher for the full year, compared with previous guidance of a 2% increase, but now they're predicated on the acquisition Hershey made of ONE Brands, a maker of high-protein, low-sugar bars. The deal follows its investment in another protein bar maker, Fulfil, that it made just before acquiring ONE.

Strength in diversity

This is money Hershey is using to continue diversifying away from chocolate. While there is no intention to abandon that market, or even have it be a secondary segment, consumers have definitively backed away from sweets and toward more healthy snacks, which was the basis for its acquisition last year of Amplify Brands.

Sales there continue to grow in the mid- to high-single-digit range, and that's even though Hershey cut back on some of the marketing it was doing with some of its emerging brands, like its Krave jerky brand. It felt it was spending too much money in certain areas and cut back spending to 6% from 7% to 7.5%.

The Amplify purchase continues to pay dividends elsewhere. The SkinnyPop popcorn brand that was the primary basis for the acquisition continues to enjoy strong growth, with sales rising 10% in the quarter as Hershey gains 170 basis points of market share in the ready-to-eat popcorn segment. That's on top of the 10% growth it saw last quarter, when it also gained over 100 points of share.

Sounding a cautious note

As noted, Hershey's sales guidance for the full year is now taking into account the ONE Brands acquisition, and the percentage increase equates to around $7.99 billion, slightly ahead of the $7.96 billion consensus forecast.

But the full-year adjusted earnings projection of $5.68 to $5.74 per share, an increase of about 4% to 6% over 2018, is just below the $5.76 outlook Wall Street had, which may have dampened market sentiment. 

Is Hershey still worth it?

While organic growth of 1.6% did come in just shy of the second quarter's 1.8%, it is still performing well in key categories like candy, mints, and gum, which rose 2.2% and gained 23 points of market share, and Reese's, which is a $2 billion brand yet saw 6% sales growth year over year.

Even so, Hershey's stock is up 33% this year and trades at 23 times next year's earnings. Even with the pullback in its stock price off its highs, it still goes for almost four times sales, meaning it remains pricey. 

It's a mature company enjoying moderate though sustainable growth. Any hiccup in its operations -- from higher costs, for example -- might crimp results and cause its stock to fall further, though that might be an opportunity for investors to buy in.