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PGG Wrightson Limited (NZSE:PGW), a NZ$452.91M small-cap, is a consumer staples company operating in an industry which supplies necessities to consumers. This means it is less sensitive to changes in the economic cycle given that demand remains relatively stable over time. Consumer staple analysts are forecasting for the entire industry, a positive double-digit growth of 18.16% in the upcoming year , and a massive growth of 37.46% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the NZ stock market as a whole. Today, I will analyse the industry outlook, and also determine whether PGG Wrightson is a laggard or leader relative to its consumer staples sector peers. See our latest analysis for PGG Wrightson
What’s the catalyst for PGG Wrightson’s sector growth?
Changing tastes in consumer preferences is becoming more disruptive than that of industry competitors. Many consumers now prefer to buy whole, raw ingredients and prepare more of their meals at home. Additionally, new companies with unique business models have emerged in the wake of this healthier food trend. In the previous year, the industry saw growth of 6.50%, beating the NZ market growth of 3.89%. PGG Wrightson is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 6.50% in the prior year. However, analysts are not expecting this trend to continue, with future growth expected to be -16.72% compared to the wider consumer staples sector growth hovering in the teens next year.
Is PGG Wrightson and the sector relatively cheap?
The food product industry is trading at a PE ratio of 18.5x, in-line with the NZ stock market PE of 14.02x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 14.32% compared to the market’s 10.96%, potentially illustrative of past tailwinds. On the stock-level, PGG Wrightson is trading at a lower PE ratio of 10.04x, making it cheaper than the average food product stock. In terms of returns, PGG Wrightson generated 15.63% in the past year, which is 1.31% over the food product sector.
Next Steps:
PGG Wrightson is a food product industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, PGG Wrightson is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at PGG Wrightson’s fundamentals in order to build a holistic investment thesis.