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Premier Foods plc (LON:PFD), might not be a large cap stock, but it maintained its current share price over the past couple of month on the LSE, with a relatively tight range of UK£1.80 to UK£1.96. However, does this price actually reflect the true value of the mid-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.
See our latest analysis for Premier Foods
What's The Opportunity In Premier Foods?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 14.83x is currently trading slightly above its industry peers’ ratio of 13.19x, which means if you buy Premier Foods today, you’d be paying a relatively reasonable price for it. And if you believe that Premier Foods should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Premier Foods’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Premier Foods generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 19% over the next couple of years, the outlook is positive for Premier Foods. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
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?