Go With the FLO and its Wonder-Full News

Yes, it has been paying a sweet dividend with a yield-to-price currently of nearly 2.39%. But that dividend equals a payout ratio of 70%, which in the food and bakery business is dauntingly high and perhaps unsustainable. Now with the news on the Hostess deal shares spiked 8% on Monday the 14th.

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No wonder insiders and beneficial owners (5% owners) who collectively hold 12% of FLO's outstanding shares have been slowly selling as the stock's price has been ascending. Director Amos R. McMullian's reported holdings alone, as of Dec. 5, were close to an impressive 2.435 million shares.

CEO George Deese, whose annual compensation is a comfortable $1.54 million, owns nearly 1,337,000 shares. At the current share price approaching $27, that's over $36,000,000 worth of commitment. It should be pointed out that insiders aren't selling large amounts, just a little at a time.

Perhaps that's because with the good news about the Hostess acquisitions (which generated just under $1 billion in sales last year), Flower Foods is on the verge of a big year ahead in revenue, operating income and EPS. Added to the $3 billion in FLO's current annual sales and the aroma of fresh-baked loaves of bread also includes the scent of much-needed cash flow.

So my take on FLO is if you'd like to join McMullian and Deese as shareholders, it might be prudent to cool your heels for awhile. The stock price appears to have gotten ahead of itself from a technical as well as a fundamental perspective.

With a forward (one-year) price-to-earnings ratio of 21 and a price-to-earnings-to-growth ratio of a lofty 2.87, I'd wait till the stock settles back to $23 or below before I'd be a buyer. Since FLO is planning to finance the deal with Hostess, investors are wise to remember how that adds to the company's total debt load.

At the very least, study the company, watch the news and press releases from Flower Foods, and resolve to buy the dips and to not overpay. If you own the stock consider a tighter trailing stop alert to preserve your gains.

At the time of publication, the author held no positions in any of the companies mentioned.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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