Premier Foods plc (LON:PFD), is not the largest company out there, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£1.17 at one point, and dropping to the lows of UK£0.93. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Premier Foods' current trading price of UK£0.96 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Premier Foods’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is Premier Foods Worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Premier Foods’s ratio of 10.62x is trading slightly below its industry peers’ ratio of 11.59x, which means if you buy Premier Foods today, you’d be paying a decent price for it. And if you believe Premier Foods should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Premier Foods’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Premier Foods look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Premier Foods' earnings over the next few years are expected to increase by 23%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? PFD’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at PFD? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on PFD, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PFD, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
It can be quite valuable to consider what analysts expect for Premier Foods from their most recent forecasts. At Simply Wall St, we have the analysts estimates which you can view by clicking here.
If you are no longer interested in Premier Foods, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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