In a time when practically everything -- stocks included -- seems overpriced, it would be refreshing to find a bona fide, needle-in-the-proverbial-haystack value play. Maybe that play's in your pantry right now. Kraft Heinz (NASDAQ:KHC) currently offers what not every $40 billion-plus-market-cap business can: a relatively low valuation, a positive earnings profile, and (like it or not) a willingness to protect its margins by practically any means necessary.

Young woman looking at a food product while grocery shopping

IMAGE SOURCE: GETTY IMAGES.

Sometimes it takes a crisis...

Compared to the miscellaneous food industry's trailing 12-month P/E ratio around 21 -- which itself isn't horrendous -- Kraft Heinz, at roughly 11.8, should make the shareholders feel like they're shoplifting.

KHC stock wasn't always such a bargain. For a few months in 2016, Kraft Heinz rode high and mighty, trading at 34 times the company's earnings. Shares fetched nearly $90, and the investors were probably feeling pretty good about themselves. Kraft Heinz, recently formed as a merger between H.J. Heinz Company and Kraft Foods Group, had just swung from an H1 2015 net loss to a sizable $1.67 billion net profit in H1 2016. In large part, this was likely due to the new mega-company eliminating 8,250 job positions, $568 million severance and employee benefit costs, $337 million non-cash asset-related costs, and $376 million other exit costs through July 3, 2016.

But by 2018, a surprising culprit had dragged the share price down to the $30s. The annual report from that year cites one impairment loss (i.e., a typically permanent loss in an asset's market value) after another, culminating in a jaw-dropping net loss of $10.2 billion. Kraft Heinz's gross profit margin also commenced a prolonged decline that same year, from 36% in early 2018 to 30% at the March 2020 effective start of the Covid-19 pandemic. When a company's gross margins starting to slide like this, it could signal an increase in the cost of materials as suppliers raise prices for goods -- an issue that businesses are certainly dealing with in 2021.

Reflecting on 2018's impairment charges, Kraft Heinz Executive Vice President and then-CFO David H. Knopf cited/blamed revised margin expectations in Kraft natural cheese, Oscar Mayer cold cuts and Canadian retail -- again, suggesting that it cost the company more to source its materials, thereby inhibiting Kraft Heinz's ability to profit on each product sold. And, in an excuse/reality that should sound painfully familiar today, Knopf also blamed his company's 2018 woes on supply chain issues.

An inconvenient truth

So 2016's swing to a profit preceded a bear market in KHC stock. Fast-forward to 2021's first three months, and Kraft Heinz just posted a $1.27 billion net profit versus a net loss of $676 million during the first three months of 2020. Admittedly, there was a one-time factor to credit for this: Kraft Heinz openly acknowledged that the Covid-19 pandemic produced a short-term beneficial financial impact to the company's fiscal results. Kraft Heinz also acknowledged the post-crisis recovery boost as the company's retail sales increased due to greater-than-anticipated consumer demand for the products. 

So, can investors confidently declare, "It's different this time"? Again, a P/E ratio of 12-ish versus 2018's 34, along with the drastically reduced share price, certainly feels different. Granted, Kraft Heinz's current gross profit margin of 32% represents a decline from early 2018's 36%, but it's still an improvement over March 2020's 30%. Besides, no business can turn back the clock and source its materials today at 2018 supplier prices, in order to achieve those sweet, bulky pre-pandemic margins. Moreover, Kraft Heinz seems to have no qualms about passing its costs onto the consumers, so it may be able to improve its profit margins that way.

Indeed, Kraft Heinz has (perhaps unfairly) become the poster child of food-price inflation in 2021. Undoubtedly, public-relations specialists worldwide winced as CEO Miguel Patricio scandalously -- or perhaps honestly -- told the BBC that people will have to get used to higher food prices.

Carlos Abrams-Rivera, U.S. zone president at Kraft Heinz, was more delicate with his language. Apparently, Abrams-Rivera and his company are prepared to implement a "value focus" in their brand designs, which may include shrinking portion sizes to keep prices consistent in the wake of inflation. 

Meanwhile, current CFO Paula Basillo is apparently "very confident" in Kraft Heinz's ability to protect its margin and deal with inflation. Basillo added -- as if anybody doubted this -- that Kraft Heinz is open to further price increases if inflation continues to rise.

Hold the cheese, please

As we've seen, the 2015 merger between Kraft and Heinz marked a historic transition point -- and the near-top for investors in the combined companies.

Evidently, Kraft Heinz CEO Miguel Patricio wants the company's stakeholders to believe that they're now witnessing another "rapid transformation." This time around, though, the result will actually be a smaller company.

Kraft Heinz is selling its global intellectual property rights to, among other brands, Cracker Barrel, Breakstone's, Polly O, and Cheez Whiz in the majority of countries outside of North America.

Does it make sense for Kraft Heinz to slim down by selling the rights to those not-so-slimming food brands? The company stands to gain approximately $3.2 billion in cash from the transaction, while still retaining its rights to much of its junk-food-brand portfolio in the U.S. and Canada.

Considering that Kraft Heinz's cash and cash equivalents dwindled from $3.4 billion in late 2020 to $2.3 billion as of September 25, 2021, it might not be a terrible idea for the company to jettison some cheesy brands abroad in the interest of capital accumulation. Perhaps Kraft Heinz could start to pay down its $23 billion in long-term debt -- quite a burden to bear, considering that the company had $1.8 billion in trailing-12-month free cash flow (FCF) as of Sept. 25, 2021, a significant decline from the $2.9 billion recorded a year prior.

A Kraft-y business

It might leave a bad taste in your mouth, but Kraft Heinz is ahead of the curve in its willingness to pass its costs onto the consumers when needed. This unwelcome development for shoppers should still inspire confidence in stakeholders.

In retrospect, perhaps Kraft Heinz's growing pains as a massive conglomerate were inevitable. Half a decade after the merger, the company seems to finally recognize that sometimes, less really is more.

So, where does this leave prospective investors now? As high-flying Kraft Heinz got humbled, the share price tumbled. But if the current earnings multiple doesn't intrigue value investors, nothing in this bloated market will.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.