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5 Reasons to Add Papa Murphy's (FRSH) to Your Portfolio Now

Zacks Equity Research

It often happens that investors miss out on the chance to buy winning stocks that they knew would stand out. Before they take the plunge, others get to know their hidden potential and take positions, thereby pushing them out of reach.

So, instead of repenting, spotting the off-the-radar potential winners and immediately investing in them could be a smart decision.

One such company that looks well positioned for a solid gain, but has been overlooked by investors lately, is Papa Murphy's Holdings, Inc. FRSH.

The company has good prospects and a Zacks Rank #1 (Strong Buy) further underscores the potential for its outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

What Makes Papa Murphy's a Solid Choice?

Earnings & Revenue Growth: Arguably, nothing is more important than earnings growth as surging profit levels are often an indication of strong prospects (and stock price gains) for the company in question.

Papa Murphy's has a historical EPS (earnings per share) growth rate of a momentous 173.91%, compared to the industry average of a mere 10.9%. Focusing on its projected growth, investors should note that here the company is looking to grow at a rate of 31.3%, thoroughly crushing the industry average, which calls for EPS growth of just 7.7%.

Propelling the earnings forward is the company’s solid revenue growth story. In fact, the company has recorded a historic sales growth of 17.7% in the last five years, while the industry’s average was 4.2%. Notably, the company’s sales growth in 2017 is also projected to be 5.1%.

Valuation Looks Rational: Papa Murphy's has a Value Style Score of ‘A’, under our style score system. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.

Papa Murphy's has a forward PE ratio (price relative to this year’s earnings) of 19.48, which compares favorably with the Zacks classified Retail-Restaurants industry’s average PE of 21.07.

Looking at the sales, the company is currently trading at a P/S ratio of 0.54, much lower than the industry average of 1.20. Some people like this metric more than other value-focused ones because sales are harder to manipulate with accounting tricks than earnings.

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so it can give a more accurate picture of the financial health in a business. Papa Murphy's has a P/CF of 3.97, lower than the industry’s average of 9.46.

All these ratios deem the company undervalued in comparison with its industry peers and thus indicate a good time to buy.

Return on Equity: Papa Murphy's currently provides a return on equity (trailing twelve months) of a gigantic 265.05%, in an industry where other restaurant stocks like Brinker International, Inc. EAT, Domino’s Pizza, Inc. DPZ and Bravo Brio Restaurant Group, Inc. BBRG, to name a few, have eroded equity in the same time frame.

Low Beta Stock: A stock with beta less than 1 suggests that the price movement of the stock is not highly correlated with the market. Since they are less volatile than the market, they are safer bet at the moment. That said, Papa Murphy's has an impressive beta of just 0.06. Therefore, adding this company to your portfolio should bring down the overall beta, thereby reducing its risk.

Estimate Revisions: Earnings estimates have risen in the past few weeks on the company, suggesting that sentiment on Papa Murphy's is moving in the right direction.

Over the last 60 days, the Zacks Consensus Estimate for 2017 earnings has moved up over 100% to 21 cents, reflecting three upward revisions versus none downwards. Also, 2018 earnings estimates have increased significantly to 36 cents, over the last 60 days, on the back of one upward revision, against none downward.

However, this decidedly bullish trend is not yet reflected in its price, as the stock lost 2.1% over the same time frame.

But going forward you should not be concerned about the price remaining muted. The reason being this year’s expected earnings growth of 31.3% over the prior year, which is in turn expected to result in price appreciation.

Papa Murphy's Holdings, Inc. Price and Consensus


Papa Murphy's Holdings, Inc. Price and Consensus | Papa Murphy's Holdings, Inc. Quote

Bottom Line

One of the best ways to find underappreciated stocks is by looking at companies that haven’t seen their share prices move higher lately, but have observed analysts raising earnings estimates for their stock. This trend could signal that investors haven’t yet embraced the rising estimate story, but there is definitely a potential for a big move, in the future.

So if you are looking for a stock flying under-the-radar that is well-equipped to bounce down the road, make sure to consider Papa Murphy's. The company’s solid estimate revisions and a top Zacks Rank suggest that better days are ahead and it might be considered as an interesting buying opportunity, now.

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Domino's Pizza Inc (DPZ): Free Stock Analysis Report
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Papa Murphy's Holdings, Inc. (FRSH): Free Stock Analysis Report
Brinker International, Inc. (EAT): Free Stock Analysis Report
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