B&G Foods (BGS -3.06%) is the type of under-the-radar stock that can often present exciting growth opportunities for investors. Even though you probably use at least one of its products regularly, and likely more, it's not a company that immediately springs to mind when thinking about food stocks.

Yet its portfolio of brands is like a who's who of kitchen staples: Crisco shortening, Cream of Wheat farina, Dash spices, Grandma's Molasses, Green Giant vegetables, and Weber seasonings are just some of the brands B&G owns.

Couple cooking at home.

Image source: Getty Images.

Famed investing legend Peter Lynch used to favor such stocks because he loved dead-simple businesses. One of his favorite maxims is, "Never invest in an idea that you can't illustrate with a crayon." Another of his sayings is, "Buy what you know." B&G would seemingly fit in to both of these investing precepts.

Yet, B&G Foods hasn't been a very good investment. Over the past decade, its stock has lost more than half its value, and it was forced to slash its dividend after consistently paying it for 73 years. But 2023 is shaping up to be a little better with the shares up 13% year to date, and with the stock seemingly trading at a very discounted valuation.

Let's see if B&G Foods is just too cheap to ignore.

A costly pursuit of growth

The problem B&G has faced over the years is that its products are not ones of its own making, but rather brands that it has acquired over time, often with an eye toward turning them around and selling them for a profit.

Crisco, for example, was created by Procter & Gamble back in 1911, and B&G bought it from J.M. Smucker at the end of 2020. It acquired Dash, Molly McButter, and the rest of the Culver Specialty Brands portfolio from Unilever in 2011. In January it sold the Back to Nature brand it had acquired from Mondelez International in 2017 to pasta maker Barilla. 

That means there are always a lot of moving parts with B&G Foods, and also a lot of debt to finance the give and take. At the end of 2022 it had over $2.3 billion in long-term debt, and another $51 million in operating leases. Almost $1.2 billion of that debt is coming due in 2025, and B&G has just $45 million in cash to offset that load. A debt-to-equity ratio of 2.9 is not particularly enviable, especially in a rising-interest-rate environment.

With operating cash flow of $6 million and capital expenditures of $22 million, B&G Foods is a net user of cash, which suggests there may be more portfolio divestitures in the food stock's future, as well as potentially dilutive cash raises.

Man shocked by grocery receipt.

Image source: Getty Images.

Inflation has exacted a heavy toll

In addition to higher interest rates, the current inflationary environment has not been kind to B&G Foods either. President and CEO Kenneth Keller told analysts at an industry conference last September that the company had been crushed by soaring commodity prices. B&G anticipated 11% to 12% inflation, but the war in Ukraine caused prices to nearly double.

"20% inflation, I think that's higher than most of our peers," he said, pointing in particular to soybean oil's rise, because it represents about 40% of B&G's commodity exposure as it is a key ingredient in Crisco. "In the last 18 months, that's up well over two times," Keller said.

Increasing inflation forced the packaged food company to dramatically increase prices, though many food companies reacted similarly. Where the Consumer Price Index was up 6.3% in January, food prices were 10.1% higher than they were a year ago.

B&G Foods was able to play catchup in the fourth quarter because of its price hikes, as sales were up 9% year over year, with profit margins improving. Keller expects that to continue throughout 2023 so long as inflation continues to moderate.

An inflection point or heartburn?

It appears the food stock may have finally bottomed. It reorganized its business and made a conscious decision to pursue organic growth again. The cook-at-home trend is also making a comeback. That means that at 12 times next year's earnings and a fraction of its sales, B&G shares could be attractively priced.

Yet, a large percentage of its working capital goes toward servicing its debt, leaving little for its lowered dividend, which is currently yielding 6% annually. That signals higher risk for the payout and the company, and investors might be better served by finding some other way to spice up their portfolio until B&G Foods can prove it can still grow the business.