How Does Big Rock Brewery Inc (TSX:BR)’s Prospect Stack Up Next To Its Consumer Discretionary Peers?
Big Rock Brewery Inc (TSX:BR), a CADCA$46.08M small-cap, is a beverage company operating in an industry which has been a consistent performer over time due to its robust consumer demand throughout economic cycles. Consumer staple analysts are forecasting for the entire industry, a positive double-digit growth of 12.46% in the upcoming year , and a strong near-term growth of 27.92% over the next couple of years. This rate is larger than the growth rate of the Canadian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether BR is lagging or leading in the industry. View our latest analysis for Big Rock Brewery
What’s the catalyst for BR’s sector growth?
The beverage industry is reshaping itself, avoiding traditional sugary drinks and mass-market tactics for approaches that are more focused on health and personalized customer interaction. Beverage industry players are paying close attention to these changes in order to predict consumer preferences so they can stay ahead of the trends. In the past year, the industry delivered negative growth of -14.30%, underperforming the Canadian market growth of 11.33%. BR lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its beverage peers. As the company trails the rest of the industry in terms of growth, BR may also be a cheaper stock relative to its peers.
Is BR and the sector relatively cheap?
The beverage industry is trading at a PE ratio of 24x, above the broader Canadian stock market PE of 17x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 5.44% compared to the market’s 9.17%, which may be indicative of past headwinds. Since BR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? BR has been a beverage industry laggard in the past year. If your initial investment thesis is around the growth prospects of BR, there are other beverage companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how BR fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If BR has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its beverage peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at BR’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Big Rock Brewery’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer staples stocks instead? Use our free playform to see my list of over 100 other consumer staples companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
