Friday, November 22, 2024

Is Rocky Mountain Chocolate Factory, Inc. (RMCF) the Best Chocolate Stock to Buy Now?

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We recently compiled a list of the 10 Best Chocolate Stocks to Buy Now. In this article, we will look at where Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF) ranks among the best chocolate stocks to buy now.

Chocolate is a sweet treat made from cocoa beans that are harvested, fermented, dried, roasted, and ground into cocoa mass, the core ingredient in chocolate. This mass then undergoes further processing to produce various types of chocolate.

The Confectionery Sector’s Performance

The confectionery sector saw a modest 3.74% year-to-date (YTD) increase compared to the broader market’s 18.13% rise. Rising input costs have driven up prices, particularly cocoa prices which have tripled in the past 12 months due to crop diseases in West Africa, which contributes around 80% of the world’s cocoa output, as reported by Food & Drink Digital. According to a report by J.P. Morgan, chocolate brands are grappling with higher cocoa costs (reached $10,000 per metric ton in March 2024) and are passing these increases on to consumers through price hikes. Ken Goldman, lead equity research analyst for U.S. Food Producers and Retailers at J.P. Morgan, made the following comment about this:

“In the U.S., Hershey has been very clear that list pricing is still one of the most important arrows in their quiver to offset inflation. Over the next year or two, they will probably pass on more cocoa inflation, and consumers will see higher prices for their chocolate as a result.”

The broader economic environment, including inflation and interest rates, also impacts consumer spending patterns, which further affects the confectionery sector. Increased prices in essential goods, such as food, can lead to reduced discretionary spending, impacting sectors like confectionery.

However, cocoa prices are expected to ease slightly in the medium term and may stabilize around $6,000 per metric ton. This could result from improved weather conditions and increased planting of cacao trees, which may provide some relief to the chocolate market.

The Chocolate Market Outlook

Despite the ongoing cost and pricing concerns, the global chocolate market has experienced significant growth, reaching an estimated $119.39 billion in 2023. According to Grand View Research, the market is projected to continue growing at a compound annual growth rate (CAGR) of 4.1% from 2024 to 2030.

According to a report by Dame Cacao, approximately 7.5 million metric tons of chocolate are consumed globally each year, equivalent to nearly 2.2 pounds (1 kg) of chocolate per person. The U.S. leads as the largest chocolate importer, with $955 million in chocolate-related imports in 2023, followed by France at $772.5 million during the same period, according to IndexBox. 

Rising Consumer Awareness in the Chocolate Industry

Consumer awareness is reshaping the chocolate industry, driving a surge in demand for specialty chocolates. In the National Confectioners Association’s State of Treating Report 2021, we find that there is a growing interest in organic, vegan, gluten-free, and sugar-free chocolates. Single-origin and bean-to-bar chocolates are gaining popularity for their distinctive flavors. Research highlights the health benefits of dark chocolate, including improved blood circulation and high flavonoid content, which further fuel its popularity.

Leveraging Chocolate as a Marketing Tool

In a competitive marketing landscape, chocolate is proving to be a powerful and versatile tool. Custom-branded chocolates not only create memorable experiences but they also enhance brand perception and boost client loyalty. Personalized chocolate gifts featuring logos or tailored messages offer a personal touch that fosters deeper connections. In addition, the visual appeal of chocolate makes it ideal for social media, driving engagement and brand visibility. This showcases chocolate’s powerful appeal to global consumer segments.

With that, let’s now move on to our list of the 10 Best Chocolate Stocks to Buy Now.

Pixabay/ Public Domain

Methodology

For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the chocolate industry, focusing on areas relevant to chocolate production and distribution. From that group, we picked 10 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Top 20 Chocolate Companies in the World by Revenue

Top 20 Chocolate Companies in the World by Revenue

Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF)

Number of Hedge Fund Holders: 2

Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF) is a global franchiser of premium chocolate and confectionery stores, as well as a producer of an extensive range of high-quality chocolates and other confectionery products. It received the title of one of America’s Best Retailers in the chocolate and candy store category on Newsweek’s 2023 list. It is among the best chocolate stocks on our list.

In Q1 2025, Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF) reported stable revenues of $6.4 million, maintaining consistency with the prior year. Although revenue from Durango premium chocolates, fudge products, and retail sales increased by $0.3 million, the gain was offset by a comparable decline in royalty and marketing fees. As a result, the company’s net loss from continuing operations widened, increasing to $1.6 million from $0.8 million in the previous year, largely driven by persistent cost pressures and efficiency challenges.

Furthermore, Rocky Mountain Chocolate Factory’s share price fell by 3.23% over the past month and 61.62% year-to-date. This decline is partly due to rising cocoa prices driven by a global shortage, exacerbated by climate change-related droughts in West Africa. Additionally, interim CEO Jeff Geygan’s overhaul of the company’s strategy has triggered investor uncertainty, negatively affecting stock performance.

However, Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF) has improved its position by selling a parcel of land in April 2024 for nearly $1 million and is negotiating new credit facilities to boost working capital. These steps are expected to support growth initiatives such as store expansion and production upgrades. Moreover, on August 6, 2024, the company announced a private investment in public equity (PIPE) financing deal to raise approximately $2.2 million, which will support its strategic plan for sustainable growth. This investment, led by American Heritage Railways, also introduces a strategic partnership that aligns with RMCF’s market strategy.

As of Q2 2024, two hedge funds, with a combined investment of $0.74 million, are bullish on the stock, according to Insider Monkey’s database.

Overall RMCF ranks 10th on our list of the best chocolate stocks to buy now. While we acknowledge the potential of RMCF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RMCF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

 

Disclosure: None. This article was originally published on Insider Monkey.

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