Most analysts love Anheuser-Busch InBev, which has an average rating of buy. But there's reason to believe the stock may be overvalued at today's price of $48.85 per share. Let's look at the fundamentals ourselves and see if we reach a different conclusion than the analyst community.
Anheuser-Busch InBev has a P/E ratio of 15.3 based on its 12 month trailing earnings per share of $3.2. Considering its future earnings estimates of $3.74 per share, the stock's forward P/E ratio is 13.1. In comparison, the average P/E ratio of the Consumer Staples sector is 23.09 and the average P/E ratio of the S&P 500 is 29.3.
We can also compare the ratio of Anheuser-Busch InBev'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 equity value -- or what is left over when we subtract its liabilities from its assets. BUD has a P/B ratio of 1.23, with any figure close to or below one indicating a potentially undervalued company.
Next up in our analysis is Anheuser-Busch InBev's levered free cash flow, which stands at $2.57 Billion. 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, Anheuser-Busch InBev has chosen the former.
At Market Inference, we will keep monitoring Anheuser-Busch InBev 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.
