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

While Premium Brands Holdings Corporation (TSE:PBH) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Premium Brands Holdings’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Premium Brands Holdings

Is Premium Brands Holdings Still Cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’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 31.93x is currently trading slightly above its industry peers’ ratio of 30.54x, which means if you buy Premium Brands Holdings today, you’d be paying a relatively sensible price for it. And if you believe that Premium Brands Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like Premium Brands Holdings’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

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. 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 46% over the next year, the near-term future seems bright for Premium Brands Holdings. 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? PBH’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 PBH? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on PBH, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PBH, which means it’s worth further examining other factors such as the strength of its balance sheet, 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. For example, Premium Brands Holdings has 2 warning signs (and 1 which shouldn't be ignored) we think 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.