The risk of investing in the stock market is a systematic crash. This is when all the stock prices start falling around the same time. But this risk is also an opportunity for those that understand the fickle nature of the market. High quality, proven companies tend to stick around in the long run, although their share price may be temporarily impacted by a crash. This is the best time to buy stocks like Pernod Ricard SA at a discount.
Pernod Ricard SA produces and sells wines and spirits in Europe, the Americas, Asia, and internationally. Pernod Ricard was formed in 1805 and has a market cap of €36.62b, putting it in the large-cap group. Typically, large companies are well-established and highly resourced, meaning that stock market volatility may impact some short-term strategic decisions but unlikely to matter in the long run. Therefore, large-cap stocks are a safe bet to buy more of when the general market is selling off.
Pernod Ricard currently has €8.27b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Pernod Ricard generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 7.72x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by 21.36%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means RI is financially robust in the face of a volatile market.
RI’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 3.07%, beating the industry growth rate of 2.30%. It has also returned an ROE of 11.40% recently, above the industry return of 9.58%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Pernod Ricard as an investment over the long run.
Next Steps:Pernod Ricard makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Pernod Ricard? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for RI’s future growth? Take a look at our free research report of analyst consensus for RI’s outlook.
- Valuation: What is RI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RI is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.