With an average analyst rating of buy, MamaMancini's is clearly an analyst favorite. But the analysts could be wrong. Is MMMB overvalued at today's price of $1.5? Let's take a closer look at the fundamentals to find out.
The most common valuation metric for stocks is the trailing price to earnings (P/E) ratio. MamaMancini's has a P/E ratio of -55.4 based on its 12 month trailing earnings per share of $-0.03. Considering its future earnings estimates of $0.14 per share, the stock's forward P/E ratio is 10.7. In comparison, the average P/E ratio of the Consumer Defensive sector is 24.21 and the average P/E ratio of the S&P 500 is 15.97.
We can also compare the ratio of MamaMancini's's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present liquidation value -- or what would be left if the company sold off all its assets and paid off all of its debts today. Importantly, the book value does not include intangible assets such as the value of its brand and the goodwill of its customers. MMMB has a P/B ratio of 5.2, with any figure close to or below one indicating a potentially undervalued company.
A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. MamaMancini's's quick ratio is 0.93. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.
Next up in our analysis is MamaMancini's's levered free cash flow, which stands at $47,426.00. This represents the cash that is available to the company after all of its expenses and income are accounted for -- including those that arise outside of its core business activities. This money can be used to re-invest in the business or to payout a dividend. For now, at least, MamaMancini's has chosen the former.
At Market Inference, we will keep monitoring MamaMancini's to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.
