Bega Cheese Limited (ASX:BGA), which is in the food business, and is based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to A$8.05 at one point, and dropping to the lows of A$7.16. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Bega Cheese’s current trading price of A$7.25 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 Bega Cheese’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Bega Cheese
Is Bega Cheese still cheap?
Bega Cheese is currently overpriced based on my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 46.39x is currently well-above the industry average of 18.91x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like Bega Cheese’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Bega Cheese generate?
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. Bega Cheese’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? BGA’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe BGA should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.