Is Tootsie Roll Stock A Buy?

Tootsie Roll Industries, Inc. (NYSE:TR) is a company you may not have even realized was public. But it found itself in the Reddit spotlight when the WallStreetBets community targeted it for a short squeeze. This briefly shot TR share price up to the moon – to a high of $57.26 – before falling back to earth.

Now that the short squeeze is seemingly water under the bridge, is Tootsie Roll stock a Buy?

Media mentions of Tootsie Roll stock are few and far between, so the February 2021 run-up on the back of Reddit mentions came as quite a surprise. Short interest mounted on the company because of lagging sales. For example, 2020 net sales of $467.43 million fell short of 2019’s $523.62 million haul.

But those numbers are nothing to sneeze at, and the company continued paying a modest 1.1 percent dividend yield when so many other firms suspended their shareholder payouts. The underrated candy company could have more stable finances than short sellers believe.

How many licks can Tootsie Roll investors take? We unwrap this candy company.

Tootsie Roll: The Big Picture

Tootsie Roll Industries is a Chicago, Illinois-based confectionary company that manufacturers and markets its brands globally. It was created in 1896 by an immigrant in New York City and was listed on the American Stock Exchange in 1919.

The company makes Tootsie Rolls and Tootsie Pops, along with Dots, Sugar Daddy’s, Andes Chocolate Mints, Charms Blow Pops, Charleston Chews, Junior Mints, Nik-L-Nip, Wax Lips, Dubble Bubble, and more.

These candies are iconic American sweets often given away at Halloween or used as stocking stuffers at Christmas. You can find them in candy dishes in offices worldwide too. The name “Tootsie” is the nickname of the founder’s daughter, Clara Hirshfield.

And while the company initially grew through a series of acquisitions, it hasn’t been as active on the Sweets & Snacks acquisition market in recent years. In fact, it may have missed the boat entirely on the shift to healthier snacks, leaving some investors wondering if it’s been sold short for a reason.

Is Tootsie Roll Stock A Buy?

Tootsie Roll fourth quarter net earnings were $14.9 million, compared to $14.5 million in 2019. When you factor in the worldwide shutdowns, growth – albeit marginal – is a positive sign. It also shows that people were lining up to buy the candy even before its dramatic short squeeze.

And it raises the question on just how much legitimate investor interest was mixed in with the temporary trading frenzy. Its 2020 earnings report was available at the time, so traders were using fresh data.

Tootsie Roll’s net earnings for 2020 come in at $58.9 million, compared to $64.9 million in the prior year. This drop in sales can be attributed to the loss of an underrated marketing avenue alluded to above.

Risks Of Buying Tootsie Roll Stock

The biggest problem Tootsie Roll faced in 2020 was the closing of public events, offices, and other places its candy is often given away.

Many people’s first exposure to a Blow Pop or Tootsie Roll as a child is through these free giveaways you can find all over the place. It’s a great guerilla marketing tactic that the company lost out on during the coronavirus pandemic. This caused revenues and earnings to slide down.

And that caused hedge fund short interest to pile up. Regardless of how well the company is performing, these shorts can crush stock prices and create huge liquidity shortages. That could be a crucial limiting factor that causes the company to go out of business or seek a buyout.

While this illustrates the dangers of hedge fund shorting, Tootsie Roll may have the ability to grow through acquisitions. However, it needs to be mindful of what it buys, because global snacking trends are changing.

Can Tootsie Roll Pivot To Healthier Sweets?

The Sweets and Snacks Expo is the premiere event for all things candy and snacks related, and the past several years focused on healthier snacks. Even established brands are working on organic, gluten-free, sugar-free, and other forms of healthy snacks to feed a changing consumer palette.

Although Tootsie Roll has an established candy brand that stretches back through generations, it needs to continue innovating to remain relevant.

Many of its candies are also commonly found in movie theaters, which struggled on their own. This means it needs to find new avenues to sell (or give away) its candies if it wants to remain relevant.

There’s also a lot of buzz about the need to buy a competitor to stay afloat. One possibility is Sugarfina, which is actively seeking investors for its luxury gummies. This opens it to a new audience that may not have the same emotional connection to the Tootsie brand.

Is Tootsie Roll Stock A Buy? The Bottom Line

Tootsie Roll is an iconic American candy company that got targeted by hedge funds for shorts in 2020. This caused it to be rolled into the WSB short squeeze mob running through the 2021 stock market. While its price spike may have been temporary, the company’s business prospects aren’t.

It’s an established company with healthy revenues, a steady dividend, and the ability to pivot by adding healthier snacks to its distribution system. It can also go the route of adding some luxury brands to its product portfolio now that high-priced candy is struggling.

There’s no telling how many licks a Tootsie Roll stock can take, but this company still has some bite left in it.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.