Does Flowers Foods, Inc.’s (NYSE:FLO) June Stock Price Reflect Its Future Growth?

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Flowers Foods, Inc. (NYSE:FLO) closed yesterday at $22.79, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Flowers Foods

Where’s the growth?

Analysts are predicting good growth prospects for Flowers Foods over the next couple of years. The consensus forecast from 5 analysts is certainly positive with earnings per share estimated to rise from today’s level of $0.814 to $1.122 over the next three years. On average, this leads to a growth rate of 11% each year, which illustrates an optimistic outlook in the near term.

Is FLO’s share price justified by its earnings growth?

FLO is available at a PE (price-to-earnings) ratio of 28.01x today, which tells us the stock is overvalued based on current earnings compared to the Food industry average of 24.8x , and overvalued compared to the US market average ratio of 17.5x .

NYSE:FLO Price Estimation Relative to Market, June 11th 2019
NYSE:FLO Price Estimation Relative to Market, June 11th 2019

We understand FLO seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as Flowers Foods is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 28.01x and expected year-on-year earnings growth of 11% give Flowers Foods a quite high PEG ratio of 2.66x. Based on this growth, Flowers Foods’s stock can be considered overvalued , based on the fundamentals.

What this means for you:

FLO’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are FLO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has FLO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of FLO’s historicals for more clarity.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.