United Food Holdings Limited (SGX:AZR), a SGD$70.27M small-cap, operates in the consumer staples sector, which supplies necessities to consumers. This means it is less sensitive to changes in the economic cycle given that demand remains relatively stable over time. Consumer staple analysts are forecasting for the entire industry, a relatively muted growth of 5.76% in the upcoming year . Today, I’ll take you through the sector growth expectations, as well as evaluate whether United Food Holdings is lagging or leading in the industry. View our latest analysis for United Food Holdings
What’s the catalyst for United Food Holdings’s sector growth?
Disruption from consumers is becoming more prominent than that of industry competitors. Consumers are predominantly leaning towards more health-conscious alternatives such as whole and raw ingredients. Furthermore, companies that are now emerging are latching on these trends with efficient business models. Over the past year, the industry saw growth of over 50%, beating the Singapore market growth of 7.92%. United Food Holdings 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 United Food Holdings may be trading cheaper than its peers.
Is United Food Holdings and the sector relatively cheap?
Food product companies are typically trading at a PE of 11x, relatively similar to the rest of the Singapore stock market PE of 14x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 9.96% compared to the market’s 7.94%, potentially illustrative of past tailwinds. Since United Food Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge United Food Holdings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? United Food Holdings recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto United Food Holdings as part of your portfolio. However, if you’re relatively concentrated in food product, you may want to value United Food Holdings based on its cash flows to determine if it is overpriced based on its current growth outlook.