National Beverage is taking Wall Street by surprise today, falling to $46.93 and marking a -7.4% change compared to the S&P 500 (1.6%). FIZZ currently sits within range of its analyst target price of $45.5, which implies that its price may remain stable for the near future. Indeed, the average analayst rating for the stock is underperform. Over the last year, National Beverage shares have outstripped the S&P 500 by 6.6%, with a price change of -3.6%.
National Beverage is a consumer non-cyclical company since it markets so-called staple goods and services that consumers tend to purchase regardless of their discretionary income. Thus, sales revenue tends to remain relatively unchecked by economic downturns, which in turn can help the stock price remain stable. The flip side is that these stocks will generally see comparatively little growth during periods of economic growth.
For this reason, investors consider stocks such as these as being potential defensive positions in a portfolio. This sector encompasses industries such as tobacco, beverages, packaged foods, household and personal products, grocery stores, and food distributors.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the second quarter of 2022, the consumer defensive sector has an average P/E ratio of 24.04, and the average for the S&P 500 is 15.97.
National beverage 's trailing 12 month P/E ratio is 27.9, based on its trailing Eps of $1.68. The company has a forward P/E ratio of 23.5 according to its forward Eps of $2 -- which is an estimate of what its earnings will look like in the next quarter.
Earnings are the most widely used metric for understanding a stock's valuation. When considered alongside the company's revenue growth, they can also give insight into the company's margins, which in turn can allow us to make inferences about its possible competitive advantages. National beverage 's year on year (YOY) quarterly earnings decreased at a rate of -14.2% while its YOY quarterly revenue grew at a rate of 8.9%.
Since earnings are growing at a slower rate than revenue, the company's profit margins are shrinking as a result of increases in the their tax liabilities, decreasing product prices, an increase in overhead, or a rise of the cost of goods sold.
Unlike earnings, gross profits are the company's revenue minus the cost of goods only, and don't take into account taxes and overhead. Analyzing gross profit margins as opposed to net (operating) margins gives a better picture of the company's pure profit potential and pricing power in its market, unclouded by other factors. As such, it can provide insights into the company's competitive advantages -- or lack therefor. FIZZ has gross profit margins of 36.7%, from which we can infer that its competitive advantage is probaly not absolute, and is facing some pricing pressure from other companies within the same market.
The revenues and earnings related to sales are only a part of the financial puzzle of large corporations, which have many costs and expenses arising independently from their core business: cost of maintaining debt, rent payments, return on capital investments, depreciation, etc. When all of these separate cash flows are taken into account, we are left with the company's levered free cash flow, which for National Beverage is $79,962,000.
This represents the amount of money that is available for reinvesting in the business, or paying out to investors in the form of a dividend. With a positive cash flow, FIZZ is in a position to do either -- which can encourage more investors to place their capital in the company.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
National beverage's P/B ratio is 17.9 -- in other words, the market value of the company exceeds its book value by a factor of more than 17, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Defensive sector, which stands at 4.06 as of the second quarter of 2022.
As of second quarter of 2022, National beverage is likely overvalued because it has a very high P/E ratio and an inflated P/B ratio. Its decent profit margins, positive cash flows, and an analyst consensus of some upside potential aren't enough to justify this high valuation . We hope this preliminary analysis will encourage you to do your own research into FIZZ's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
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