It’s been a difficult couple of years for Hormel Foods Corp (NYSE:HRL). Hormel stock had been an impressive multi-year outperformer until it touched $44 back in early 2016. Since then, however, HRL stock has lost about a quarter of its value.

To be fair, Hormel isn’t alone in struggling. Over the last two years, Hormel stock is down 23%. But General Mills, Inc. (NYSE:GIS) has declined 26%. Campbell Soup Company (NYSE:CPB) has fallen by nearly one-third. And, of course, grocers themselves like Kroger Co (NYSE:KR) have struggled, with the Amazon.com, Inc. (NASDAQ:AMZN) acquisition of Whole Foods Market portending more potential margin pressure on retailers — and suppliers.

In that context, there’s a case for HRL stock. I’d certainly rather own Hormel stock than CPB or GIS, the latter of which I’ve long been bearish on. But I still wonder whether the sector at all is worth investing in at the moment — and whether Hormel stock is cheap enough to take on that sector risk. From here, it looks close — but to be compelling, I’d like to see HRL get even cheaper.

Bull Case for Hormel Stock

At its core, the bull case for Hormel stock is that the company has faced tougher times than these. This is a company that’s now 127 years old — and it’s been one of the better performers in the sector, and the entire market, for much of that time.

Hormel stock is a Dividend King — meaning it has raised its dividend for more than 50 consecutive years. Over time, Hormel stock, including those dividends, has crushed the market. During the last 40 years, for instance, Hormel has returned 35,690%!

As far as more recent history goes, it’s true that earnings per share declined 4% in fiscal year 2017 (ending October). But 2 points of the decline came from the divestiture of the Farmer John business. The Jennie-O business continued to struggle with oversupply in the turkey industry. And comparisons were brutally tough: Adjusted earnings per share rose double-digits in each of the previous three years, including a 24% rise in FY16.

Even considering that there was some help from acquisitions on the way, FY17 doesn’t necessarily appear all that disappointing. FY18 earnings are expected to possibly decline again, excluding the impact of tax reform. But the turkey business still is weak — operating profit dropped 27% in the first quarter — and higher freight and commodity costs are having an impact.

There is some upheaval in the food industry. Margins are getting tighter, which means suppliers like Hormel can get squeezed. But while the headline numbers don’t look particularly impressive as far as FY17 and FY18 go, HRL bulls argue that’s not nearly enough reason to toss out a 127-year history of growth. Hormel will be fine, eventually. And as the company returns to its long-term targets of 5% revenue growth and 10% profit growth, the multiple will expand back toward the 20x range, and earnings growth will mean Hormel stock will resumes its multi-decade history of above-market returns.

Bear Case for Hormel Stock

It’s an intriguing case — particularly for income investors enticed by what is now a 2.24% yield growing double-digits. But it has some holes.

The first is that past performance doesn’t guarantee future returns. It’s very possible that the grocery space has changed — for good. After all, the rest of retail has seen dramatic upheaval. Margins are coming down across the entire industry, in apparel, in auto parts — and, yes, in grocery. Hormel is trying to mitigate some of the potential pressure by adding international sales, and expanding its product categories. But at the moment, there’s basically no place to hide in grocery — and I’m skeptical that changes in the near- to mid-term, if at all.

The second related, problem is that the bull case for Hormel stock is mostly backward-looking. And it’s a similar case to those of many other stocks. If Hormel is a buy because its a 100-year-old-plus Dividend King, why not Procter & Gamble Co (NYSE:PG), which has a higher yield? Why not Kellogg Company (NYSE:K) — which admittedly only is a Dividend Achiever? There are a number of companies in similar situations — several of which are cheaper and/or have bigger yields.

In that context, it’s worth pointing out that Hormel isn’t that cheap, even after the recent pullback. Neither an estimated 18x multiple to the midpoint of FY18 EPS guidance nor an estimated 11x EV/EBITDA multiple is a notable outlier. Both suggest that growth will accelerate rather sharply — and rather soon. Even Hormel’s own long-term target of about 10% EPS growth generally suggests a low 20s multiple – and Hormel isn’t close to that target at the moment.

I understand the case for Hormel stock — and it is somewhat intriguing. The turkey market will fix itself. There is some level of safety in the food space, despite the current margin pressure. Hormel can add value through M&A, as it has in the past. There are worse stocks in the market than Hormel, no doubt.

But the concerns about the industry are real. And in that context, Hormel stock doesn’t look quite cheap enough. As long as the market still is pricing in growth, and Hormel isn’t growing, HRL is going to struggle. It may take quite a while before that reversal comes.

As of this writing, Vince Martin has no positions in any securities mentioned.