By Dan Mitchell
January 29, 2014

FORTUNE — Diamond Foods (DMND) was already well on its way earlier this month toward getting past its problems when it settled with the Securities and Exchange Commission for $5 million on allegations that it cooked the books in 2010 and 2011 to boost its results. But the San Francisco-based Diamond, which badly wanted to play in the big leagues of snack foods, still has a long way to go to convince both suppliers and investors to stick with it as it retools its existing businesses.

A scan of recent analyst reports reveals that deep concerns remain on Wall Street. A glance at Diamond’s stock chart reveals the same: Shares are down about 72% from their peak in September 2011, a few months before the SEC launched its probe into the company’s accounting practices.

That investigation, based on the company’s delayed payments to growers so it could reduce reported costs in 2010 and 2011, led to earnings restatements and the suspension — and eventual dismissal — of CEO Michael Mendes and CFO Steven Neil. And it led to the collapse of the company’s highly leveraged, $1.5 billion agreement to buy the Pringles snack brand from Procter & Gamble (PG), a move that highlighted Mendes’ hunger to be a major player in the snack market, competing with the likes of Mondelez (MDLZ)¬†and PepsiCo (PEP).

MORE: Boycotting SodaStream: Righteous protest or empty gesture?

Instead, P&G sold Pringles to Kellogg (K) for $2.7 billion in February 2012. Diamond has been reeling ever since. Mendes, now CEO of Just Desserts, a privately held Bay Area maker of premium baked goods, agreed to pay $125,000 to settle the allegations against him without admitting to or denying them. He had already paid back more than $4 million in bonuses and other benefits he collected in 2010 and 2011. Neil, meanwhile, continues to fight the SEC’s charges that he was primarily responsible for the alleged fraud, and is headed for trial. The company paid out $96 million last August to settle a shareholder lawsuit related to the scandal.

With all that nastiness now behind it, Diamond is left to shore up its fundamentals. In part, that means paying renewed attention to its core walnut business — something Mendes had badly wanted to evolve beyond. Diamond started out as a humble cooperative of walnut growers in Northern California. When it went public in 2005, growers were given seats on the board, and the company gave stock to co-op members, many of whom still own shares. Growers have understandably been concerned about Diamond’s fate, as well as their own, ever since the IPO and the subsequent moves away from the nut business (Diamond owns the Pop Secret brand of popcorn as well as Kettle chips.) The Pringles deal, and then the accounting scandal, only heightened tensions, and many growers have fled to other buyers, including foreign ones.

In a report titled “Still Stuck,” Jeffries & Co. analyst Thilo Wrede in December noted that between the company’s smaller grower base and tightening supplies of walnuts in general, Diamond will have a tough time shoring up its core business — which is crucial for the rest of the operation. Wrede expects Diamond’s shares to remain flat for the foreseeable future.

MORE: Cheerios’ GMO-free claim is marketing, enabled by industry critics

Walnuts are a “key source of cash flow” for Diamond, which needs that money to invigorate the Kettle brand, where most of the company’s growth potential lies, according to Barclays analyst Andrew Lazar. He’s taking a “wait and see approach” on Diamond’s shares.

Diamond executives were fairly vague in their first-quarter earnings call in December, when the company reported wider losses of $42.2 million, compared with a loss of $10.7 million in the year-earlier period. Revenues were down more than 9%, to $235 million.

Kenneth Zaslow of BMO Capital Markets said he was “disappointed” with the executives’ “opaque commentary” during the call. For instance, the executives talked a lot about the “challenges” Diamond is facing in relaunching its Emerald brand of packaged nuts, and in shoring up its supply base, but they offered few details about those efforts.

Such vagueness — or perhaps caution — might be understandable as the new executives (CEO Brian Driscoll took the helm 22 months ago; Ray Silcock became CFO in June) continue to exorcise the company’s demons. But investors won’t let them get away with it for much longer.

Silcock, a longtime veteran of Campbell Soup (CPB), last week told the Wall Street Journal that he’s spent most of his time over the past six months working to “correct all of the overhanging issues” from the scandal. Most of them have been corrected now, and it’s time for Diamond to show that it’s serious about the nut business that the previous administration had all but abandoned.

You May Like