Value traps have many of the hallmarks that value investors typically seek in a stock: apparently strong returns on capital, wide moats around their business, and sustainable business with recurrent demand. Yet for whatever reason, the allure turns out to be a siren's song for the unwary investor. Given those criteria, it's fair to wonder whether Income Investor recommendation SYSCO
Unfortunately, results for the company's fiscal fourth quarter do little to answer the question. Revenue growth rose more than 6%, a decent showing that included a new accounting policy's negative impact on sales recognition. What's more, there was actual cost inflation this time around, which is good for margins.
Speaking of margins, gross margins were better this time around, and would have been even without the benefit of that aforementioned accounting change. On the operating line, though, operating income was down about 6%, due partly to stock compensation expense. By the same token, even if you add back that incremental expense, operating profits were still down slightly.
I also have some concerns about the company's market position. I don't really think that U.S. Foodservice (part of Royal Ahold
All things considered, SYSCO should be seeing better results in the next few quarters. Companies like Tyson
I've learned over the years that an investor does well to remain skeptical, and I've been skeptical on SYSCO for quite a while. That's not to say SYSCO may not be a value someday (or even today, perhaps), but it's not quite the slam-dunk that it's sometimes portrayed to be.
Further food-fueled Foolishness:
- Tyson Hopes You Feel Like Chicken Tonight
- Kellogg and the Myth of Safe Stocks
- Might SYSCO Be Worth a Nibble?
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Whole Foods is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.