Hostess stock sports a 42% year-over-year lead
Hostess Brands, Inc. (NASDAQ:TWNK) made a few headlines recently. It was just announced that the stock will be added to the S&P SmallCap 600 Index (SPCY) effective Tuesday, Feb 1. Additionally, the firm set a date for its virtual Investor Day on Tuesday, March 1. TWNK will also report its fourth-quarter earnings before the open on the same day.
The security hit a record high of $21.21 during yesterday's session, adding 6.7%, which marked its biggest single-session jump in nearly a year. The stock is cooling from yesterday's surge, last seen down 0.9% at $20.33, though it still sports a year-over-year 42.5% lead. Several short-term moving averages could step in as solid support, including the stock's 20-day moving average, which is helping to contain today's pullback, as well as the 10-day moving average -- a former ceiling that TWNK toppled during yesterday's trading.
Short sellers have been hitting the exits in droves, which could have helped contribute to the recent surge. Short interest dropped 49.9% in the last two reporting periods, and now makes up just a slim 1.7% of the stock's available float.
Moreover, Hostess Brands’ trailing 12-month revenues have increased 8% since fiscal 2020 and are up 29.5% since fiscal 2018. In addition, TWNK is estimated to grow revenues and earnings 5.1% and 9.3%, respectively, in 2022. A major red flag, though, is that Hostess Brands' trailing 12-month net income has decreased 36% since fiscal 2020.
Furthermore, Hostess Brands holds a fairly weak balance sheet with $228 million in cash and $1.12 billion in total debt. Hostess stock's valuation is also relatively high with TWNK trading at a price-earnings ratio of 21.19 and a price-sales ratio of 2.39, ultimately making Hostess stock fairly overvalued.