MTY Food Group (TSX:MTY): CA$73M One-Off Loss Drives Margin Drop, Undervalued Signal Persists

MTY Food Group (TSX:MTY) reported a significant one-off loss of CA$73.0 million for the 12 months ended August 31, 2025. This pushed net profit margins down to 2.7% from 8.3% a year ago. Despite its steady track record of 12.2% annual earnings growth over the last five years, this year’s results marked a turnaround to negative earnings growth. Revenue is only projected to rise by 0.2% per year, well behind the broader Canadian market’s expected 4.9%. With margins under pressure and only modest growth on the horizon, investors are left weighing the sting of short-term losses against the company’s longer-term record of profitability.

See our full analysis for MTY Food Group.

The next section lines up MTY’s latest earnings results with widely held market narratives, highlighting where the numbers challenge expectations and where they reinforce the current story.

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P/E Premium as Profits Slide

• At 24.8x, MTY’s Price-to-Earnings ratio is noticeably higher than the Hospitality industry average (22.1x) and peer group (19.8x), even though net profit margin dropped to 2.7% from 8.3% last year.
• What is surprising in the prevailing market view is how a premium valuation persists despite clear margin pressures:
  • Investors are still willing to pay above-sector multiples for MTY, possibly betting on stability from its five-year streak of 12.2% annual earnings growth.
  • However, the recent sharp reversal in profitability highlights tension between confidence in MTY’s longer-term model and real-time earnings declines.

Share Price Below DCF Fair Value

• MTY’s share price is CA$34.35, significantly below the estimated DCF fair value of CA$93.69 and analyst average price target of CA$47.67.
• The prevailing market view raises two key contrasts around value:
  • Some see the steep discount to DCF fair value as a reward signal, suggesting the stock is undervalued if the business rebounds from its one-off loss.
  • On the other hand, skepticism about the sustainability of profits and margins tempers immediate optimism, with the discount potentially reflecting the market’s concern over recent negative earnings growth.

Revenue Growth Lags Market Trend

• Revenue is projected to grow just 0.2% per year, far behind the broader Canadian market’s expected 4.9% annual growth.
• The prevailing market view notes that MTY’s asset-light franchise model offers some resilience but limited near-term upside:
  • While a strong past record may support the case for long-term stability, limited sales momentum now puts the onus on operational execution and controlling costs.
  • Guidance for such slow revenue growth signals that, absent faster expansion or improving profitability, patience may be needed before any turnaround is visible in reported results.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on MTY Food Group's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

See What Else Is Out There

Despite MTY’s historic growth and stable model, its recent profitability reversal, compressed margins, and lagging revenue projections indicate limited momentum compared to the broader market.

If you want steadier progress and less volatility, check out stable growth stocks screener to focus on companies with a proven track record of reliable expansion year after year.

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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