Lamb Weston, a major frozen potato supplier, faced a significant setback as its stock plummeted by 26%. The company’s financial results for the fiscal fourth quarter of 2024 and its cautionary outlook for fiscal 2025 triggered this sharp decline. Lamb Weston serves restaurant chains and grocery stores globally as one of the world’s largest french fry companies.
Despite a 21% year-over-year increase in net sales during fiscal 2024, the company attributed 99% of this growth to acquisitions rather than organic consumer demand. Lamb Weston pointed to rising restaurant menu prices as a key factor discouraging consumers and dampening demand. The company’s guidance for fiscal 2025 projects a modest 5% top-line growth at best, coupled with a decrease in profitability.
Investors were particularly concerned about the wide range in the company’s net income guidance, which spans from $630 million to $705 million, suggesting uncertainty about the upcoming year.
Stock drops on weak forecast
At its current market capitalization of approximately $8 billion, Lamb Weston stock trades at a forward earnings multiple of less than 13 in a worst-case scenario.
While this valuation is lower than usual and could attract value investors, the market’s reaction today suggests a potential overreaction to the company’s outlook. It is important to note that french fries are unlikely to disappear from the market in the long term, and the stock’s current affordability could lead to a modest recovery in the near future. However, value investors must also consider the importance of long-term growth potential when seeking stocks that can outperform the market.
In this regard, questions remain about Lamb Weston’s growth prospects. The company’s challenges serve as a reminder of the ongoing impact of inflation on both stock prices and everyday consumer goods, such as french fries. As businesses navigate this complex economic landscape, investors and consumers alike must remain vigilant and adapt to the evolving circumstances.
