SunOpta trades at $6.15 and has moved in lockstep with the market. Its shares have returned 7.5% over the last six months while the S&P 500 has gained 11.6%.
Is now the time to buy SunOpta, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is SunOpta Not Exciting?
We don't have much confidence in SunOpta. Here are three reasons there are better opportunities than STKL and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. SunOpta struggled to consistently generate demand over the last three years as its sales dropped at a 4.9% annual rate. This wasn’t a great result and signals it’s a lower quality business.
2. Fewer Distribution Channels Limit its Ceiling
With $763.2 million in revenue over the past 12 months, SunOpta is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.
3. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.
SunOpta has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 15.6% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $84.37 went towards paying for raw materials, production of goods, transportation, and distribution. 
Final Judgment
SunOpta isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 26× forward P/E (or $6.15 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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