Is Premium Brands Holdings Corporation (TSE:PBH) Potentially Undervalued?

Premium Brands Holdings Corporation (TSE:PBH), is not the largest company out there, but it saw significant share price movement during recent months on the TSX, rising to highs of CA$96.75 and falling to the lows of CA$76.06. 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 Premium Brands Holdings' current trading price of CA$81.27 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Premium Brands Holdings’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 Premium Brands Holdings

What Is Premium Brands Holdings Worth?

Premium Brands Holdings appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Premium Brands Holdings’s ratio of 36.4x is above its peer average of 25.39x, which suggests the stock is trading at a higher price compared to the Food industry. Furthermore, Premium Brands Holdings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Premium Brands Holdings?

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. Premium Brands Holdings' 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? PBH’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe PBH should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PBH for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for PBH, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Premium Brands Holdings at this point in time. Every company has risks, and we've spotted 2 warning signs for Premium Brands Holdings you should know about.

If you are no longer interested in Premium Brands Holdings, 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.