Pity this bear.

After all, it's not easy to take the gum-on-yer-shoe position on Wrigley (NYSE:WWY), especially when the firm announces a celebrity CEO win. You hadn't heard? Former Nike (NYSE:NKE) CEO William Perez was hired. That, and a 15% increase in net earnings, pushed the stock up as much as 15% on Monday.

So there you have it. Wrigley "beats" by $0.04, and adds a superstar with a consumer-product background, replacing the Wrigley-family scion who's been at the helm since 1999. The company owns well-known, well-loved brands of varying gums and candies, giving it a pretty good lock on a fairly stable market: stuff people put in their mouths (to paraphrase Charlie Munger), which is a pretty intimate place. What's not to like?

Firstly, Fool: the price.

Sure, Wrigley still looks cheap when you compare the current price-to-earnings or price-to-sales ratio to historical averages, but I think P/E or P/S multiples don't tell the right story at Wrigley. When I value Wrigley's free cash flows (FCF), beginning with a growth rate of 15%, I arrive at a fair price of $50 a share.

And I think that 15% growth rate is probably far too generous. Wrigley has in fact generated compound annual growth rates (CAGR) for FCF of only 8% during the past half-decade. Plugging reality into my growth model values the shares at more like $45 each.

"TMFBent!," you grouse, "you're just short!" True, I can be pretty pessimistic, but in Wrigley's case, I believe there are good reasons. Here's the margin picture, and it's not really heading in the right direction:

2001

2002

2003

2004

2005

Gross Margin

58.3%

56.8%

56.9%

55.7%

55.2%

Operating Margin

21.4%

21.3%

21.2%

19.7%

19.6%

Net Margin Ex Items

15.1%

14.6%

14.5%

13.5%

12.4%

FCF Margin

8.7%

5.7%

13.9%

13.8%

11.4%
All numbers are for the fiscal year ended on Dec. 31 of the indicated calendar year.

Same sad story for my calculations of returns on equity and return on invested capital:

2001

2002

2003

2004

2005

ROE

29%

28.8%

26.5%

24.6%

26.4%

ROIC

31.9%

30.5%

28.6%

27.1%

21.1%
All numbers are for the fiscal year ended on Dec. 31 of the indicated calendar year.

These two tables explain how Wrigley has turned a five-year revenue CAGR of 14% into a cash earnings CAGR of only 8%. Unlike values I love -- companies that generate more earnings from less revenue -- Wrigley appears to be doing less with more. Dwindling margins and a big reduction in returns show why I believe Wrigley needs to be priced as a much slower grower.

This is a fine company selling for a not-so-fine price. You wouldn't slap down 20% too much for a pack of Hubba Bubba, and you shouldn't overpay for stocks, either. There's always a better alternative a couple of shelves down.

Duel on!

Wrigley is a Motley Fool Income Investor pick. Discover other dynamic dividend payers with a free 30-day trial.

At the time of publication, Seth Jayson had no positions in the stocks in this article. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.