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Sweet Tooth for Mondelez About to Decay

Stocks in this article: MDLZ KRFT

NEW YORK ( The Street) -- For most of 2013, food giant Mondelez (MDLZ) has had to answer naysayers who have insisted that expectations for the company's margin growth were pure hype. But with the stock now trading at a 52-week high on year-to-date gains of 35%, management has done its part to silence the skeptics. Mondelez may look sweet now, but its stock performance may be about to spoil.

Despite its strong gains, Mondelez still sports a P/E that is higher than other food giants like Nestle (NSRGY), ConAgra (CAG) and Danone (DANOY) This implies there are still high expectations heading into 2014. But I would caution new investors to be careful here.

While it's true that management has delivered where it matters, I'm just not convinced that revenue growth -- organic or otherwise -- can maintain its upward trend without adversely impacting profitability. And with the bar being set so high on a stock that's far from cheap, it may only take a slight dip in Mondelez's margins to trigger a pullback. [Read: Apple, China Mobile Deal Done: Report]

Now I'm not suggesting that Mondelez, which has posted several quarters of above-average organic growth, is destined for failure. The company's recent gains seem to have fueled the Street's expectations of outperformance. But I think the "easy money" has already been made, and the time to develop a sweet tooth for this stock has passed.

Why? Consider that since Mondelez split off from Kraft's (KRFT) $35 billion snack food business in 2012, management has worked hard to expand the company's geographic footprint. I've always believed this to be brilliant strategy, given the global success that Kraft had generated from iconic brands like Oreo, Nabisco and Trident.

However, in the most recent quarter, Mondelez began to experience some weakness in international markets.  They achieved only a 2% year-over-year revenue increase, missing Street estimates by 1%. The revenue struggle was partly blamed on double-digit revenue declines in China, where Mondelez generates roughly $1.1 billion in annual revenue.

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