Hershey (NYSE:HSY) has advanced 10% this year, thus matching the performance of S&P (NYSEARCA:SPY), and is now hovering around its recent all-time high. As it is characterized by remarkably low volatility, it is perceived as a safe stock by many investors, particularly those who are afraid of an imminent bear market after the ongoing 8-year bull run. However, investors should realize that the stock is in deep overvalued territory right now and hence it has significant downside risk.

First of all, the management boasts of having achieved top sales performance among its peers, as it has increased the core domestic sales at an average 3.2% annual rate in the last 4 years. Moreover, it has consistently expanded the adjusted operating margin throughout the last decade, from 15.0% in 2008 to 20.4% last year. It has also grown the adjusted earnings per share [EPS] at a 9.3% average annual compounded rate in the last 5 years. Therefore, the company seems to have achieved exceptional performance in recent years, at least on the surface.

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