Since late last summer, food giant J M Smucker Co (NYSE: SJM ) has been sinking slowly, but surely. It started with the company's August earnings report (Q1 FY2017); Smucker suffered a 7% year-over-year drop in sales, which left revenue short of Wall Street's consensus and sent investors running for the exits.
The initial plummet was followed by several sinking months for Smucker stock, and a similarly significant year-over-year revenue drop in the following quarter didn't help, either.
A similar story could be found in the next report. Perhaps more interesting, though, is the shadow cast by those sales struggles. In the August release, for example, net income per diluted share of SJM stock increased 28%, while adjusted earnings per share increased 16%. Things fell back into single digits the quarter after, but that's still interesting, considering that growth wasn't fueled by anything organic.
Smucker Stock Could Be a Long-Term Play
Over time, Smucker has grown via acquisition and is now focused on synergies and returning value to shareholders. While inorganic growth isn't usually that appealing from an investment standpoint, it does seem to suggest that Smucker is doing a great job with the variables it can actually control. This year, for example, another sales decline is expected, yet earnings are still slated for almost 30% year-over-year growth.
That makes SJM stock pretty appealing from a price-to-earnings perspective; You're getting 30% growth for a stock trading at just 15 times forward earnings. Meanwhile, Smucker upped its dividend by 12% last year, and SJM stock currently yields more than 2.3%. While that's in part thanks to the recent decline, history suggests another bump could be on the horizon, which would help support the yield as shares of Smucker stock recover.
Smucker stock's current base bodes well for a recovery, too. SJM stock ran right through its short-term moving average when shares plummeted in August and has remained under the cliff ever since - until this week, that is. I expect the 50-day moving average to serve as a base for investors who realize the damage with Smucker is quite overdone.
One thing to note is that double-digit earnings growth isn't expected long-term. The five-year estimate is for growth of just 5%, which suggests some bumps in the road ahead. But, between now and the end of SJM stock's current fiscal year, I see a bargain pick with substantial upside.
Hilary Kramer is the editor of GameChangers , Breakout Stocks Under $10 , High Octane Trader , Absolute Capital Return and Value Authority . She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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