Over the past six months, Flowers Foods’s shares (currently trading at $20.63) have posted a disappointing 7.9% loss, well below the S&P 500’s 6.1% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Flowers Foods, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.Even with the cheaper entry price, we're cautious about Flowers Foods. Here are three reasons why there are better opportunities than FLO and a stock we'd rather own.
Why Is Flowers Foods Not Exciting?
With Wonder Bread as its premier brand, Flower Foods (NYSE:FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Flowers Foods grew its sales at a tepid 5.4% compounded annual growth rate. This was below our standard for the consumer staples sector. 
2. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Flowers Foods’s average quarterly sales volumes have shrunk by 1.2% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
3. EPS Trending Down
Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Flowers Foods, its EPS declined by 1.4% annually over the last three years while its revenue grew by 5.4%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Flowers Foods’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 15.9× forward price-to-earnings (or $20.63 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward Microsoft, the most dominant software business in the world.
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