I’ve noticed in recent years that low-priced penny stocks have become very popular with retail do-it-yourself investors. 

It concerns the “lottery” mindset, where a little bet means a little loss. 

On May 7, before the markets opened, B&G Foods Holdings (BGS) reported poor Q1 2025 results. BGS stock dropped 25% on the news.  

Yesterday, its shares hit a new 52-week low of $4.28, the 22nd in the past year, the lowest level since January 2010. 

There is no question that BGS is a penny stock for good reason. Its debt alone makes it a tough sell to other food companies. It likely will have to dig itself out of the hole it’s dug all by itself.   

With bankruptcy proceedings a real possibility, there is little hope for the New Jersey-based company. 

If you’re an aggressive contrarian investor, here’s why a speculative bet on B&G Foods might not be a lost cause.

B&G Foods’ Brands Aren’t the Worst

Any food company’s success depends on the quality of its brands and consumers' engagement with those brands. 

B&G Foods has four reporting segments: Specialty (32% of revenue), Meals (25%), Frozen & Vegetables (22%), and Spices & Flavor Solutions (21%). 

I see a business with four evenly diversified revenue streams. That’s a positive for sure. The negative, which drove investors to the sidelines, was the double-digit decline in sales for three of the four segments. Overall, its Q1 2025 sales were down 10.5% to $425.4 million.

Let’s briefly forget its declining sales and profitability and consider each segment’s brands.

Specialty is the company’s largest segment. Its brands include Crisco (cooking oils), Bear Creek Country Kitchens (soups), and Polaner (fruit spreads. 

The Meals business’s brands include Ortega (Mexican-style foods), Cream of Wheat (hot cereal), and McCann’s Steel Cut Irish Oatmeal (hot cereal).

The Frozen & Vegetables segment relies heavily on its Green Giant brand. Most people know the Jolly Green Giant. It has the frozen business, selling the canned business to Seneca Foods  (SENEA) for a $138 million pre-tax loss.  

Lastly, the Spices & Flavor Solutions’ top brands include Dash (seasonings), Ac’cent (seasonings), and Weber (seasonings and BBQ sauce).

What’s not to like? I suppose you could argue they have too many brands (over 50) for a company that generates less than $2 billion in annual revenue. 

The problem is how it got so many brands.

Overpaying for Big Acquisitions

The company has not made a significant acquisition in the past five years, except for paying $27.3 million in 2022 for Growers Express LLC, the Green Giant frozen vegetables manufacturer, based in Yuma, Arizona.  

However, between 2011 and 2021, it spent $2.92 billion acquiring many brands over the decade. The biggest acquisition of the bunch was the $823 million purchase of the Green Giant and Le Seur brands from General Mills (GIS) in November 2015. 

As mentioned, the company sold the canned Green Giant business to Seneca Foods in Q4 2023 for a $137.7 million pre-tax loss. Proof positive that it overpaid for the Green Giant and Le Seur businesses.

Another indication that it paid too much for past acquisitions: In 2024, it wrote down $391 million in goodwill and intangible asset impairments for Green Giant and several other brands.

That’s the problem with splashy acquisitions. They often turn out to be big money wasters. 

The company’s total debt in 2011 was $720.1 million, 5.5x its EBITDA (earnings before interest, taxes, depreciation and amortization). By the end of 2022, it had ballooned to $2.46 billion, or 8.8x EBITDA. 

Over the same period, its annual interest expense increased nearly threefold to $106.9 million in 2022, from $36.7 million in 2011. In the latest 12 months through Q1 2025, it was $155.3 million.

On a positive note, it has started paying down its debt. As of March 29, it was $2.06 billion, $400 million less than at the end of 2022.  

The Upside Potential for BGS Stock

In the first quarter, B&G Foods generated $53 million in cash flow from its operations, up from $35.1 million in Q1 2024. Its free cash flow of $42.4 million was over 50% higher than a year earlier. 

It has implemented a cost-cutting program that will produce $10 million in savings in 2025 and as much as $20 million in 2026. It will use the additional cash to keep paying down debt. 

At the same time, it said in its Q1 2025 conference call that it is reshaping its brand portfolio to maximize margins and cash flow for its core business lines, such as Green Giant. Expect future divestitures. 

Despite the sales decline in the first quarter, its adjusted EBITDA remains positive. In Q1 2025, it was $59.1 million, nearly 14% of its $425.4 million revenue. Its enterprise value of $2.34 billion is 8.4x its trailing 12-month EBITDA, the lowest since 2011. 

On the negative, its Altman Z-Score, which predicts the likelihood of bankruptcy proceedings in the next 24 months, is 1.48. Anything under 1.81 means a company is distressed and could file for bankruptcy. That’s the most significant risk to a speculative bet.  

Options are a good way to play BGS stock. Three call options traded yesterday, expiring in 248 days.   

Of the three, I like the Jan. 16/2026 $6 call. The ask price of $0.25 is just 4.2% of the strike price. You can double your money by selling the call before expiration if the shares appreciate by $1.12 (26.5%) over the next eight months. 

While the profit probability is 20.74%, about half the $4 strike, the $6 strike’s cost is 72% lower. 

It’s no sure thing.