Premier Foods plc (LON:PFD), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£1.11 and falling to the lows of UK£0.88. 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 Premier Foods' current trading price of UK£0.97 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Premier Foods’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 Premier Foods
What is Premier Foods worth?
Good news, investors! Premier Foods is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio 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 Premier Foods’s ratio of 10.59x is below its peer average of 15.88x, which indicates the stock is trading at a lower price compared to the Food industry. However, given that Premier Foods’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Premier Foods?
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. However, with a negative profit growth of -14% 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? Although PFD is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to PFD, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on PFD for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing Premier Foods at this point in time. For instance, we've identified 2 warning signs for Premier Foods (1 is significant) you should be familiar with.
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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.
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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.
