When Should You Buy US Foods Holding Corp. (NYSE:USFD)?

By
Simply Wall St
Published
February 23, 2022
NYSE:USFD
Source: Shutterstock

US Foods Holding Corp. (NYSE:USFD), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at US Foods Holding’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for US Foods Holding

What's the opportunity in US Foods Holding?

US Foods Holding appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 69.74x is currently well-above the industry average of 16.65x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Given that US Foods Holding’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.

What does the future of US Foods Holding look like?

earnings-and-revenue-growth
NYSE:USFD Earnings and Revenue Growth February 23rd 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. With profit expected to more than double over the next couple of years, the future seems bright for US Foods Holding. 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? It seems like the market has well and truly priced in USFD’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 USFD 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 USFD 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 USFD, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 1 warning sign for US Foods Holding and we think they deserve your attention.

If you are no longer interested in US Foods Holding, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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