In This Article:
Sunmoon Food Company Limited (SGX:AAJ), a S$61.90M small-cap, is a retail company operating in an industry impacted by the digital transformation for all retail channels. Mobile and automation technologies allow retailers and brands to scale new services in order to make the purchase path as seamless as possible. Retail analysts are forecasting for the entire industry, a relatively muted growth of 8.16% in the upcoming year , and a robust short-term growth of 15.08% over the next couple of years. This rate is larger than the growth rate of the Singapore stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Sunmoon Food is a laggard or leader relative to its retail peers. View our latest analysis for Sunmoon Food
What’s the catalyst for Sunmoon Food’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the previous year, the industry saw growth of over 100%, beating the Singapore market growth of 11.99%. Sunmoon Food lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Sunmoon Food may be trading cheaper than its peers.
Is Sunmoon Food and the sector relatively cheap?
The food retail sector’s PE is currently hovering around 21.61x, higher than the rest of the Singapore stock market PE of 13.95x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 11.67% compared to the market’s 7.99%, which may be indicative of past tailwinds. Since Sunmoon Food’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Sunmoon Food’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Sunmoon Food has been a food retail industry laggard in the past year. If Sunmoon Food has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its retail peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Sunmoon Food’s fundamentals in order to build a holistic investment thesis.