While Premier Foods plc (LON:PFD) might not be the most widely known stock at the moment, it led the LSE gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Premier Foods’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for Premier Foods
What's the opportunity in Premier Foods?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10% below my intrinsic value, which means if you buy Premier Foods today, you’d be paying a fair price for it. And if you believe that the stock is really worth £1.14, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Premier Foods’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Premier Foods?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. However, with a negative profit growth of -16% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Premier Foods. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, PFD appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on PFD for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on PFD should the price fluctuate below its true value.
If you want to dive deeper into Premier Foods, you'd also look into what risks it is currently facing. To that end, you should learn about the 2 warning signs we've spotted with Premier Foods (including 1 which doesn't sit too well with us).
If you are no longer interested in Premier Foods, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
If you’re looking to trade Premier Foods, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
About LSE:PFD
Premier Foods
Manufactures and distributes branded and own label food products in the United Kingdom, other European countries, and internationally.
Excellent balance sheet and good value.
