Edwin Dorsey, a financial analyst and expert in short selling, joins the podcast to discuss shorting Hershey's. They explore potential challenges the company may face, reactions of management teams to critical reports, concerns about competition, and the impact of the brand Feastables on Hershey's sales. They also discuss the potential negative impact of a weight loss drug called Zempik on Hershey's business.
The emergence of Festivals, a chocolate brand created by Mr. Beast, poses a potential threat to Hershey's market share due to its strong marketing and increasing distribution.
Edwin Dorsey's Bear Cave newsletter, which exposes corporate flaws, has a unique model where he generates income through subscriptions instead of short selling, providing in-depth analysis without conflicts of interest.
The rising popularity of weight loss drugs like Ozempic could lead to reduced consumption of unhealthy snacks, including chocolate, impacting the confectionery industry and Hershey's performance.
Deep dives
Festivals brand poses a threat to Hershey's
The podcast episode discusses the emergence of the Festivals brand, created by popular YouTuber Mr. Beast. Festivals is a chocolate brand that has gained significant traction and is now available in major retail stores, including Walmart and Target. The podcast explores the potential impact of Festivals on Hershey's, highlighting the strong marketing and fan base that Mr. Beast has cultivated, which could lead to a shift in consumer preferences. While Festivals is still a relatively new player in the market, its rapid growth and increasing distribution make it a potential threat to Hershey's market share.
The unique model of the Bear Cave newsletter
The podcast delves into the unique model of the Bear Cave newsletter, written by Edwin Dorsey. The newsletter focuses on exposing corporate flaws and misleading practices, but what sets it apart is that Edwin does not actually short the stocks he criticizes. Instead, he generates income through paid subscriptions to the newsletter. This model allows Edwin to provide in-depth analysis without the conflicts of interest typically associated with short selling. The podcast highlights the legal and ethical advantages of this model and emphasizes Edwin's expertise in uncovering corporate issues.
The potential impact of new weight loss drugs
The podcast addresses the potential impact of weight loss drugs, such as Ozempic, on the confectionery industry and specifically on Hershey's. These drugs suppress appetite, reducing the desire to consume unhealthy snacks, including chocolate. While the magnitude of the impact is uncertain, the podcast suggests that an increasing number of people taking these drugs could result in reduced consumption of products offered by companies like Hershey's. This represents a potential headwind for the confectionery industry and should be monitored as part of the analysis of Hershey's performance.
Challenges to Hershey's pricing power
The podcast challenges the notion that Hershey's possesses significant pricing power. While historically, Hershey's has been able to raise prices and maintain profitability, there are concerns that this may not be sustainable. With the emergence of new competition, such as Festivals, and changing consumer habits driven by health considerations, Hershey's pricing power may be more limited than previously believed. The podcast suggests that relying solely on pricing power may not be a viable long-term strategy for Hershey's, particularly if volume declines and profit margin compression become a reality.
The downside risk for Hershey's stock
The podcast explores the potential downside for Hershey's stock. With Festivals posing a threat and risks from weight loss drugs and changing consumer preferences, there are concerns about the company's future performance. The podcast suggests that even at a discounted valuation, such as 15 times earnings, there could still be significant downside if Hershey's experiences volume declines and declining profitability. The potential for a decline in the stock price by 50% or more is mentioned, highlighting the uncertainties and risks that currently surround Hershey's as an investment.
The Hershey Company (HSY) is a renowned chocolate and confectionery manufacturer, well-known for its iconic brands, but facing the impact of changing consumer preferences and competition in the candy and snacking industry. Listen as Brett and Ryan ask questions about the company, its business model, and its valuation. Enjoy the show!
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