Simply Good Foods Stock is a Healthy Defensive Play This is a stock that has solid underlying demand trends that should support a gradual climb. In the current market environment, owning a growing food company is simply a good...

Not surprisingly, The Simply Good Foods Company (NASDAQ: SMPL) is among consumer staples stocks that are outperforming in 2022.

As the market grapples with inflation and rising rates on top of the backdrop of the Russia-Ukraine crisis, U.S. small cap stocks have struggled to build off last year's strong performance. The S&P 600 index is down 9% year-to-date —but has some bright spots.

Simply Good Foods' flat year-to-date return hasn't made shareholders rich, but it has done what you'd expect in a volatile market—provide stability. The owner of the popular Quest and Atkins brands is proving to be worth its weight in protein bars, shakes, and snacks. Consumers are buying these products despite the inflationary pressures.

We learned in the company's latest quarterly report that modest price increases are being easily digested by its health-conscious customer base. This is likely a sign of more gains to come as this defensive stock benefits from post-Covid eating and exercise trends.

How Did The Simply Good Foods Company Perform Last Quarter?

In September 2021, The Simply Good Foods Company instituted an 8% price increase across its product lineup. We learned more about how consumers are reacting to the hike during the April 6th fiscal Q2 report.

It turns out that shoppers aren't balking at the higher prices just yet. Sales were up 29% and adjusted EPS jumped 44% year-over-year. Both figures handily beat the Street. And while there was a pull-forward effect tied to the current quarter's retail programs, the results showed that supply chain-related cost pressures are being offset by strong demand.

Both the Quest and Atkins brands performed well across the convenience store and online (Amazon) channels. Quest gained market share in the active nutrition segment and Atkins did the same in weight management, driven by higher sales volumes in the core North American market. Interestingly, the company's fiscal 2021 exit from the European market may prove fortuitous given the worsening economic impact of the Russia-Ukraine war on the region.

More encouraging than the latest results is that management stood pat on its fiscal 2022 gross margin guidance for a modest 2.5% decline. This shows that the company has significant pricing power after the recent price increase. In this highly competitive, low margin space, pricing power is everything.

The outlook for full-year sales growth was bumped up to 13% to 15%. At a time when U.S. economic growth is forecast to be in the low single digits, generating this type of growth would speak to the strength of the Quest and Atkins brands.

What are The Simply Good Foods Company's Growth Prospects?

There could be significant upside to management's cautious 2022 guidance if workplace trends take a turn for the better. That's because people tend to grab nutrition bars and shakes more often when they're working in the office. Convenience is the name of the game here. Conversely, when working from home, the on-the-go lifestyle is less prevalent and so too is demand for ready-to-eat (RTE) foods.

It is the other side of the business—the healthy chips and pizzas—that tend to fall more in line with at-home consumption. So will this division suffer as the other gains? Not necessarily.

Shoppers are still expected to gravitate toward their favorite Quest and Atkins items for the home given the persistence of healthy eating habits everywhere. And with margins healthy as well, analysts are anticipating 17% and 11% bottom line growth in FY22 and FY23 respectively.

Is The Simply Good Foods Company Stock a Buy?

Shares of The Simply Good Foods Company have finished higher in each calendar year since their 2018 Nasdaq debut. Just because they have advanced 242% since the IPO doesn't mean the uptrend won't continue.

From a technical analysis standpoint, the stock is working on a symmetrical continuation triangle pattern that is rooted in its late-February breakout. If the prior upward trajectory follows through, we could see $50 in the coming weeks. Friday's bullish MACD crossover on the weekly chart also points to a longer term uptrend.

Fundamentally, Simply Good Foods is looking like a buy as well. In the wake of the pandemic, people are reaching for nutritious snacks and meal replacements, and Quest and Atkins are among the brands they don't mind paying up for. This bodes well for profitability and cash flow growth.

Like a box of Atkins bars, Simply Good Foods stock isn't cheap at 28x trailing earnings. Yet the valuation is one worth paying for considering the company is delivering above-peer growth metrics in an industry where profits are increasingly hard to come by.

This isn't a stock that will double anytime soon. But it is a stock that has solid underlying demand trends that should support a gradual climb. In the current market environment, owning a growing food company is simply a good idea.