TOOTSIE ROLL INDUSTRIES INC (TR): what the price assumes

In the published model solve dated 2026-Q2, anchored at $39.72, TOOTSIE ROLL INDUSTRIES INC (TR) is priced for +17.6% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-11.

Generated: 2026-08-10 · Exported: 2026-08-12 · Source: https://boothcheck.com/report/TR

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 8% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~8.3pp.

Reconcile: at the x-ray's 9.3% required return this reads ~5.6 years; the models below use their own rates.

How unusual the bet is: within-range

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.2%); the inversion above states its own rate.

Per-Model Detail (n=17)

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Tootsie Roll is a 130-year-old candy maker growing revenue about 2% a year, yet the stock trades at 28.8x earnings against a food-sector median of 22x, a multiple usually reserved for much faster growers.
• The Gordon family controls the vote: the 10-K states "the Gordon family has the power to elect the Company's directors and approve actions requiring the approval of the shareholders of the Company", so outside shareholders own the economics but not the decisions.
• Cocoa costs pushed gross margin to 33.9% in the March quarter, the lowest of the last four; the July 28 earnings print and the pace of cocoa cost relief into 2027 are the next things to watch.

Bull Case

Watch what the income statement did while cocoa went through the roof. In the March 2026 quarter, revenue grew 2.1% year over year, operating income inched up 0.7%, and earnings per share held flat at $0.24, all while the company absorbed what management called significantly higher cocoa and chocolate unit costs versus the prior year. Holding profit flat through the worst input-cost squeeze in the candy business is not glamorous, but it is what pricing power looks like in practice. The 10-K describes the approach plainly: "we are mindful of the effects and limits when passing on the above-discussed higher input costs to our customers", which is management saying it raises prices carefully enough that volumes survive. Cash backs the story up: trailing free cash flow of $98.9 million converts essentially all of the $100 million in net income into cash.

The margin squeeze is also an industry problem, not a Tootsie Roll problem. The company's own filing notes that "The Company believes that its competitors face the same or similar challenges", and the peer numbers bear it out: Mondelez runs a 28.4% gross margin while Tootsie Roll printed between 33.9% and 36.4% across the last four quarters even at peak cocoa costs. Two external pressures are now easing at once. Cocoa tariffs have been rescinded, and cocoa prices have retreated from their 2025 peaks, with lower costs expected to flow through the supply chain in late 2026 and into 2027. That gives the company a margin-recovery lever that requires no new demand, no new products, and no execution risk beyond continuing to do what it already does. There is even a conservatism buffer in the accounting itself: the company uses LIFO inventory costing, which the 10-K notes "generally results in lower current net" earnings during inflationary periods, meaning reported margins during the cocoa spike likely understate the underlying business.

Then there is the balance sheet, which is the quiet argument for durability. The company holds net cash, carries a current ratio of 3.57, has been profitable in all four trailing quarters, and has not diluted shareholders. The dividend is growing, and at a 27.1% payout ratio it has enormous room to keep growing. This is a business that can fund its brands, ride out commodity cycles, and wait out any downturn without asking capital markets for anything. For an investor who wants candy-shelf economics with no solvency question attached, this is about as clean as the category gets.

Bear Case

Start with who runs the money, because at Tootsie Roll that question settles most of the others. The 10-K states that the Gordon family's "share ownership represents a majority of the combined voting power of all classes of the Company's common stock", and that as a result the family elects the directors and approves anything requiring a shareholder vote. Outside holders get the economics the family chooses to distribute, and the family chooses to distribute little: $26.4 million of dividends over the trailing year, a 0.9% yield at the latest declared rate, and effectively zero buybacks against roughly $100 million of net income. Cash accumulates on the balance sheet at money-market returns while the stock trades at a premium multiple. The filing itself flags the other use of that cash: acquisitions in confectionery "generally come at a high multiple of earnings". A minority shareholder here is a passenger, and the driver is not in a hurry.

The price, meanwhile, requires something the business has never shown. At about 30x operating income, today's price embeds roughly 20% annual operating-profit growth for five years; the company just grew operating income 0.7% year over year. Of comparable companies that did grow that fast, only about 39% sustained the pace for five years, and Tootsie Roll is not currently growing that fast in the first place. Every family of valuation method lands below the price: peer multiples about 1.8x below, earnings power about 2.2x, and even forward-growth methods only get within about 30%. If the market ever reprices this at the food-sector median of 22x earnings instead of its current 28.8x, the premium evaporates without anything going wrong at the company.

The operating risks are the ordinary ones, but they are real and concentrated. Three customers account for approximately 37.8% of accounts receivable, so a lost program at a single mass retailer moves the whole company. The competitive set is Hershey and Mondelez, an order of magnitude larger, and the 10-K names the exposure: "a failure to retain preferred shelf space at retailers or a failure to sufficiently counter aggressive promotional and price competition" could hurt results. And while cocoa has retreated from its 2025 peaks, costs remain above historical norms with relief not fully arriving until 2027, which means at least several more quarters of margin pressure at a valuation that assumes acceleration, not endurance.

Valuation

At $38.29 (July 10, 2026), the market is paying about 30x operating income for Tootsie Roll, which works out to a bet that operating profit grows roughly 20% a year for the next five years. The company grew operating income 0.7% year over year in the latest quarter, and revenue about 2%. The near-term pace is within what the business has recently delivered in individual years; the stretch is the duration, since only about 39% of comparable fast growers historically sustained that rate for five years. Notably, the price does not require margin heroics: the business needs to hold roughly a 12.5% operating margin over the long run and it earns about 13.7% today. The entire bet is growth.

The valuation methods disagree with the price in an unusual way: none of them reaches it. Asset-based approaches put the price at about 1.9x what they support, earnings-power methods at about 2.2x, peer multiples at about 1.8x, and even the forward-growth methods, the most generous family, land about 30% below the price. The cash-flow method that comes closest does so by holding today's 26.1x EV/EBITDA multiple flat for five years, and today's multiple is nearly double the food-sector median of 14x. Two notes on the inputs themselves: the company's LIFO inventory accounting "generally results in lower current net" earnings during cost inflation, which flatters the case that current margins are understated, and management's own language about being "mindful of the effects and limits when passing on the above-discussed higher input costs" tempers how much pricing-led growth one can assume.

What the buyer gets for accepting that premium is a fortress underneath it. The balance sheet is net cash, the current ratio is 3.57, free cash flow of $98.9 million essentially matches net income, and the dividend consumes only 27.1% of earnings. There is no solvency scenario here, no refinancing cliff, no dilution. The downside is not distress; it is multiple compression on a slow-growing candy company, and the distance between 28.8x and the sector's 22x is the size of that exposure.

Catalysts

The next earnings report lands July 28, 2026. The April print set the template for what to watch: net sales rose 2% to $149.5 million and earnings per share held at $0.24, with gross margin absorbing significantly higher cocoa and chocolate unit costs than a year earlier. Management credited trade promotions and marketing programs for driving distribution across key product lines, so the second-quarter question is whether that support keeps volumes growing while costs stay elevated.

The bigger swing factor is cocoa. Tariffs on cocoa have been rescinded, and cocoa commodity prices have retreated from their extraordinary 2025 levels, though they remain above historical norms; the lower costs are expected to reach candy makers' cost of goods in late 2026 and into 2027. For a company whose gross margin compressed to 33.9% in the March quarter, the lowest of its last four, the timing of that relief directly sets the margin trajectory into next year. The third quarter is also seasonally decisive: the September quarter is the company's largest by revenue as Halloween orders ship, so the fall print will show whether promotional spending held shelf space through the industry's most competitive season.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• HSY (HERSHEY CO)
• FY2025 10-K: …results of operations. Table of Contents The Hershey Company | 2025 Form 10-K | Page 11 Market demand for new and existing products could decline. We operate in highly competitive markets and rely on continued demand for our products. To generate revenues and profits, we must sell products that appeal to our…
• FY2025 10-K: Hershey Company | 2025 Form 10-K | Page 25 The consumer takeaway and market share information reflect measured channels of distribution accounting for approximately 90% of our U.S. confectionery and salty snack retail businesses. These channels of distribution primarily include food, drug, mass merchandisers and…
• JJSF (J&J SNACK FOODS CORP.)
• FY2025 10-K: Chief Operating Decision Maker reviews and evaluates capital spending of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Additionally, our Chief Operating Decision Maker considers variances of actual performance to our annual operating plan and periodic forecasts when making…
• FY2025 10-K: …Chief Operating Decision Maker currently reviews the monthly detailed operating income statements, we have reclassified certain corporate expenses that are not allocated to our three reportable segments. This change in presentation resulted in an increase to our Food Service segment operating income of $24.8 million,…
• MDLZ (Mondelez International, Inc.)
• FY2025 10-K: …and powdered beverages around the world. We aim to be the global leader in snacking. Our strategy is to drive long-term growth by focusing on four strategic priorities: accelerating consumer-centric growth, driving operational excellence, creating a winning growth culture and scaling sustainable snacking. We believe…
• FY2025 10-K: …units while empowering our local and commercial operations to respond faster to changing consumer preferences and capitalize on growth opportunities. We believe our efforts to continue advancing a winning growth culture will help drive profitable top-line growth. 3 Table of Contents • Scale sustainable snacking . We…
• BRBR (BellRing Brands, Inc.)
• FY2025 10-K: …Competition The convenient nutrition category in which we operate is highly competitive and highly sensitive to both pricing and promotion. We compete with other brands, including private label and store brand products, and with many nutritional food and beverage players. We have numerous competitors of varying…
• FY2025 10-K: …due to manufacturer inability, supply chain failures or otherwise, or our failure or inability to provide sufficient investment to support and market those products as needed to maintain or grow their competitive position or to achieve more widespread market acceptance. We operate in a category with strong…
• MZTI (The Marzetti Company)
• FY2025 10-K: Foodservice segments. Efficient and cost-effective production remains a key focus as evidenced by our cost savings initiatives. Certain items are also manufactured and packaged by third parties located in the United States, Canada and Europe. COMPETITION All of the markets in which we sell food products are highly…
• FY2025 10-K: …by account specific to the time lapse between the actual change in ingredient and freight costs we incur and the effective date of the associated price increase or decrease. As a result, the reported operating margins of the Foodservice segment are subject to increased volatility during periods of rapidly rising or…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.