It hasn't been a great afternoon session for General Mills investors, who have watched their shares sink by -1.6% to a price of $64.81. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
A Very Low P/E Ratio but Trades Above Its Graham Number:
General Mills, Inc. manufactures and markets branded consumer foods worldwide. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, General Mills has a trailing 12 month P/E ratio of 15.0 and a P/B ratio of 3.64.
General Mills's PEG ratio is 1.86, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Exceptional Profitability Overshadowed by Excessive Leverage:
| 2017-06-29 | 2018-06-29 | 2019-06-28 | 2020-07-02 | 2021-06-30 | 2022-06-29 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $15,620 | $15,740 | $16,865 | $17,627 | $18,127 | $18,993 |
| Gross Margins | 36.0% | 34.0% | 34.0% | 35.0% | 36.0% | 34.0% |
| Operating Margins | 18% | 17% | 17% | 17% | 19% | 17% |
| Net Margins | 11.0% | 14.0% | 10.0% | 12.0% | 13.0% | 14.0% |
| Net Income (MM) | $1,658 | $2,131 | $1,753 | $2,181 | $2,340 | $2,707 |
| Net Interest Expense (MM) | -$295 | -$374 | -$522 | -$466 | -$420 | -$380 |
| Depreciation & Amort. (MM) | -$604 | -$619 | -$620 | -$595 | -$601 | -$570 |
| Earnings Per Share | $2.77 | $3.64 | $2.9 | $3.56 | $3.78 | $4.37 |
| EPS Growth | n/a | 31.41% | -20.33% | 22.76% | 6.18% | 15.61% |
| Diluted Shares (MM) | 598 | 586 | 605 | 613 | 620 | 619 |
| Free Cash Flow (MM) | $3,095 | $3,462 | $3,330 | $4,135 | $3,511 | $3,882 |
| Capital Expenditures (MM) | -$680 | -$621 | -$523 | -$459 | -$528 | -$565 |
| Net Current Assets (MM) | -$13,066 | -$20,008 | -$18,557 | -$17,336 | -$16,314 | -$15,212 |
| Long Term Debt (MM) | $7,643 | $12,669 | $11,625 | $10,929 | $9,787 | $9,135 |
| Net Debt / EBITDA | 2.59 | 4.68 | 4.08 | 3.32 | 2.8 | 2.89 |
General Mills has strong margins with a stable trend, wider gross margins than its peer group, and positive EPS growth. However, the firm has a highly leveraged balance sheet. Finally, we note that General Mills has weak revenue growth and a flat capital expenditure trend and irregular cash flows.
