Is The Simply Good Foods Company (NASDAQ:SMPL) Potentially Undervalued?

The Simply Good Foods Company (NASDAQ:SMPL), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQCM, rising to highs of US$41.55 and falling to the lows of US$29.40. 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 Simply Good Foods' current trading price of US$30.20 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Simply Good Foods’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Simply Good Foods

What's The Opportunity In Simply Good Foods?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 31.35x is currently well-above the industry average of 19.22x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Simply Good Foods’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of Simply Good Foods look like?

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. Simply Good Foods' earnings over the next few years are expected to increase by 95%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? SMPL’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe SMPL 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 SMPL 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 SMPL, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Simply Good Foods, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Simply Good Foods and we think they deserve your attention.

If you are no longer interested in Simply Good Foods, 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.