Is This Candy Stock a Good Pick for Halloween?

With shares of Tootsie Roll Industries trading around $26.80, and Halloween right around the corner, is (NYSE:TR) a Buy, a Wait and See, or a Stay Away? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s MovementTootsie Rolls in a bowl

Once a year Halloween rolls around and people pay marginal attention to Tootsie Roll Industries, i.e. this. Despite being publicly traded, the company is so secretive that not a single analyst covers it anymore. Tootsie does not hold earnings calls.

What could cause an investor to eye the company – in something of a morbid fashion – is the fact that CEO Melvin Gordon is 92, while his wife and COO, Ellen, is 80. The pair has been in charge since 1962. The company supposedly has a succession plan that the board is aware of, but nobody else seems to have a clue. There’s really no way to predict what could happen in a few years, but the company wouldn’t be an entirely unattractive buy for some of the other major candy players.

H = High Quality Pipeline

Tootsie Roll Industries has gobbled up a series of related brands over the years. Conquests include: The Candy Corporation of America’s Mason Division (1972), The Charms Company (1988), Warner-Lambert’s candy division (1993), Andes Candies (2000), and Concord Confections (2004).

Brands and products include a respectable portion of any kid’s pillow case on Halloween: Tootsie Rolls and Pops, Frooties, Dots, Andes Chocolate Mints, Charms Blow Pops, Charleston Chew, Junior Mints, Fluffy Stuff, Double Bubble, and Razzles.

E = Equity to Debt Ratio is Close to Zero

Tootsie Roll Industries’ debt-to-equity ratio of 0.01 looks pretty good when compared to Hershey (NYSE:HSY) at 1.87, and Mondelez International (NASDAQ:MDLZ) at 0.84. The company has done a good job sticking to its mission, and only acquiring companies that it can naturally fold into its operations.

We should also consider total debt and total cash on hand.

  Total Debt ($) Cash on Hand ($)
Tootsie Roll Industries 7.50M 79.44M
Hershey 2.00B 589.78M
Mondelez International 30.7B 4.73B

T = Technicals on the Stock Chart are StrongCharleston Chew

As of October 23, 2012, the stock price is 1.92 percent below its 20-day simple moving average, or SMA; 0.73 percent above its 50-day SMA; and 10.35 percent above its 200-day SMA.

Since the beginning of the year, the stock has been in an upward trend, and is up 13.19 percent this year to date, and 6.42 percent year over year.

The company has a market cap of $1.52 billion, below Hershey at $15.97 billion, and substantially below Mondelez at $47.35 billion.

E = Earnings Are Increasing Quarter over Quarter

Revenues have generally increased over the past five years, but have decreased over the last three quarters.

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) 492,742,000 492.051,000 495,592,000 521,448,000 532,505,000
Basic EPS ($) 0.81 0.62 0.87 0.89 0.74

Fiscal year is January-December.

Fiscal Year June 30, 2011 Sept. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 June 30, 2012
Revenue ($) 105,820,000 187,856,000 129,434,000 110,820,000 109,139,000
Basic EPS ($) 0.11 0.31 0.19 0.13

Tootsie RollT = Trends Support the Industry in which the Company Operates

This feels a bit nebulous, but it’s unlikely that people will stop eating candy. Sweets and the companies that produce them are effectively an institution. Since their primary demographic is kids — or people shopping for kids — the brand is half the battle. Over 100 years of brand recognition is a hard thing to fight against for candy start-ups.

The health-food market conceivably has a negative impact on candy in general. While the days of gorging on Tootsie Rolls may be a thing of the past, it’s difficult to see a future in which people don’t buy bags of candy at the local drug store or gas station.

But it’s also unlikely that companies like Tootsie will be seeing lots of growth. Revenues are pretty fixed, particularly coming out of the United States, Canada, and Europe. Emerging markets may offer growth opportunities, though. Tootsie Roll Industries already operates in 75 countries, but an aggressive expansion campaign is unlikely to happen under current leadership.

ConclusionKeep Away

Tootsie Roll Industries flies below the radar. If you invest with your gut, Tootsie promises to keep plugging along, getting nowhere — neither up nor down — very quickly. It’s had a decent year to date, but in the absence of any significant catalyst, there’s no reason not to expect revenues to settle back down — all eyes on the downward trend in the last three quarters. At the current rate, fiscal 2012 will see a revenue decline from 2011.

Tootsie Roll Industries is a Stay Away. If you want to put your money to work, there are better opportunities out there.