Why Premium Brands Holdings Corporation (TSE:PBH) Could Be Worth Watching

By
Simply Wall St
Published
January 12, 2022
TSX:PBH
Source: Shutterstock

Premium Brands Holdings Corporation (TSE:PBH), is not the largest company out there, but it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$137 at one point, and dropping to the lows of CA$122. 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$123 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

Is Premium Brands Holdings still cheap?

Premium Brands Holdings is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Premium Brands Holdings’s ratio of 45.89x is above its peer average of 13.87x, 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.

What does the future of Premium Brands Holdings look like?

earnings-and-revenue-growth
TSX:PBH Earnings and Revenue Growth January 12th 2022

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? It seems like the market has well and truly priced in PBH’s positive outlook, 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 an eye on PBH for a while, 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.

If you want to dive deeper into Premium Brands Holdings, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Premium Brands Holdings (of which 1 can't be ignored!) 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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.