The Hershey Company HSY appears to be trading at a premium, with its price-to-earnings (P/E) ratio higher than both the Zacks Food – Confectionery industry and the broader Consumer Staples sector. Hershey’s forward 12-month P/E ratio stands at 20.16, surpassing the industry average of 17.26 and the sector average of 16.52. This elevated valuation has raised concerns among investors about whether the stock's current price is justified.

Hershey’s high P/E ratio, coupled with its low Value Score of D, suggests that it may not offer strong value at its current price levels. Recently, the company’s stock has experienced a decline of 12.8% over the past three months, underperforming the industry’s average drop of 10.5%.

The technical indicators reveal that the stock is currently trading below both its 50-day and 200-day moving averages, signaling weak momentum and a lack of investor confidence in the company’s performance. Given these factors, investors are left wondering how to approach HSY stock.

Let’s dig deeper to find out.

HSY Struggles in a Challenging Economic Landscape

Hershey is operating in a challenging environment, thanks to historically high cocoa prices and a stretched consumer base, which continue to pressure its results. Total snacking consumption softened in the third quarter of 2024 as people prioritized value and budgeted for meals. Consumer behavior has shifted toward value-seeking due to economic pressures, prioritizing budgets for essentials and reducing foot traffic to convenience and drug stores where Hershey’s brands are over indexed.

In addition, shopping shifts to club, dollar and online channels — where the company’s products are less developed — are further complicating matters. Tighter inventory management by customers is impacting North America Confectionery and North America Salty Snacks. Hershey is also facing increased competition across all product segments.

The company is grappling with continued margin pressure, a trend that extended into the third quarter. The adjusted gross margin was 40.3%, which contracted 460 basis points (bps). This decline was caused by increased commodity costs, unfavorable timing of input costs, fixed cost deleverage and a negative mix, which offset gains from price realization and productivity improvements.

Hershey Braces for Tough Times Ahead

In its last earnings call, the company lowered its 2024 guidance, reflecting an increasingly challenging landscape. In light of current consumer and channel pressures, Hershey expects its sales to be nearly flat year over year, down from the previous forecast of around 2% growth. The adjustment to the sales outlook is driven by a weaker-than-expected third-quarter performance, ongoing competitive and consumer pressures and lower-than-anticipated retailer inventory levels in key categories such as confectionery and salty snacks. As a result of the reduced sales forecast, Hershey now projects its full-year adjusted earnings per share (EPS) to decline by mid-single digits. This marks a revision from the earlier outlook, which anticipated only a slight decline in EPS.