Can Primo Brands’ Recent Slide Signal an Opportunity After Distribution Expansion News?

• Wondering if Primo Brands is trading for less than it's worth or taking on more risk than meets the eye? You're in good company. Savvy investors know the biggest opportunities (and pitfalls) start with finding out a stock's true value.
• Primo Brands' shares have seen some ups and downs lately, slipping 2.6% over the past week and 0.5% in the last month, with the stock still down 29.1% year-to-date. However, it has returned a healthy 78.5% over three years.
• Recent headlines have spotlighted shifts in consumer preferences and changing retail partnerships, both of which play into how investors are reacting to the current price. News about distribution expansions and market share gains suggest there could be underlying growth potential, giving extra context to those recent swings.
• When we crunch the numbers, Primo Brands clocks in with a valuation score of 4 out of 6, meaning it's undervalued in most but not all categories. We’ll break down what those numbers really mean using classic valuation models, and offer a smarter way to put it all in perspective by the end of the article.

Find out why Primo Brands's -12.4% return over the last year is lagging behind its peers.

Approach 1: Primo Brands Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today's dollars. In other words, it attempts to determine what Primo Brands is truly worth based on the cash it can generate in the coming years. This makes it a core valuation approach for serious investors.

Currently, Primo Brands is generating free cash flow of $275 million. Analysts provide forecasts up to 2029, with projections showing strong growth: free cash flow is expected to rise to $1.26 billion by the end of 2029. Projections beyond analyst estimates are calculated using systematic growth assumptions. All figures are reported in US dollars.

The result: Primo Brands’ estimated fair value using the DCF method is $82.89 per share. This is significantly higher than its current price, implying the stock trades at a steep 73.5% discount to calculated intrinsic value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Primo Brands is undervalued by 73.5%. Track this in your watchlist or portfolio, or discover 840 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Primo Brands.

Approach 2: Primo Brands Price vs Sales

For a fast-growing or evolving company like Primo Brands, the Price-to-Sales (P/S) ratio is a practical valuation tool. P/S is especially important when profits are volatile or negative, since it makes it easier to compare companies based on their ability to generate revenue without being skewed by accounting differences or one-off items.

Growth expectations and perceived risk play a big role in what counts as a "normal" or "fair" P/S multiple. If a company is expected to grow quickly and maintain strong margins, investors tend to be willing to pay a higher multiple for each dollar of sales. Higher risk or slower growth typically justifies a lower multiple.

Currently, Primo Brands trades at a P/S ratio of 1.36x. For context, the Beverage industry average is 2.34x, and the average among peers is even higher at 3.63x. These benchmarks suggest that Primo Brands is priced at a discount to the broader market segment and its direct competition.

Simply Wall St’s Fair Ratio for Primo Brands is 1.18x. This proprietary measure weighs factors like growth, profit margins, company size and sector-specific risks. As a result, it is a more reliable benchmark than a simple comparison with industry or peer averages. The Fair Ratio offers a tailored view for this company, recognizing that each business has unique drivers and challenges.

Comparing Primo Brands’ current P/S of 1.36x with its Fair Ratio of 1.18x suggests that its shares are valued just slightly above what a custom assessment deems fair. Since the difference is less than 0.10, shares appear to be priced about right for the business’s current outlook and risk profile.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Primo Brands Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about Primo Brands. It is how you connect your view on the business’s future to real numbers like forecast revenue, earnings and margins, and ultimately to your own fair value for the stock.

Narratives bridge the gap between what you believe about Primo Brands and what the numbers say, linking the company’s outlook to a clear financial forecast and resulting fair value. Narratives are easy to use and available on Simply Wall St’s Community page, where millions of investors share perspectives every day.

This smarter approach helps you decide when to buy or sell, as you can instantly compare your Fair Value to the current Price. Because Narratives update automatically as news or earnings are released, your perspective always stays relevant.

For example, some investors might be very optimistic about Primo Brands’ market share growth and assign it a higher fair value, while others could focus on competitive risks and arrive at a more cautious estimate.

Do you think there's more to the story for Primo Brands? Head over to our Community to see what others are saying!

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.

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