Maple Leaf Foods Inc. (TSX: MFI) has seen its stock rise over 22% year-to-date, and the share price has recently reached a new all-time high as well. However, the stock has been on a decline since then. I will have a closer look at the stock and the company’s overall performance to determine whether or not it is a good investment at the current price.
Recent financial performance
A good place to start assessing any stock is how the company has performed in its latest quarter. Maple Leaf Foods released its second-quarter results in July, which showed the company hitting over $925 million in sales for the quarter for an increase of over 8% from a year ago. Maple Leaf Foods also saw its net income rise by 19% from a year ago, although the profit margin for the company has averaged just 5% over the past four quarters.
In its last fiscal year, the company did not see much better growth with revenues up just 1% from 2015. Although the company has continued to grow, its pace suggests the opportunities are saturated, as you would expect for the packaged meats company.
Current valuation
Currently, the company’s stock trades at a multiple of over 26 times its earnings, which is a high valuation but still lower than one of its peers, Premium Brands Holdings Corp. (TSX: PBH), which trades at a multiple of over 35. However, Premium Brands has seen much more rapid growth in the past few years with annual sales growth averaging over 20%. Shareholders are willing to pay a premium for a stock that is showing strong growth, and in the case of Maple Leaf Foods, that simply isn’t the case.
When compared to its book value, Maple Leaf Foods trades at a multiple of just over two, suggesting the stock might not be significantly overvalued.
Technical analysis
By looking at the stock’s performance in the past six months, you can see that it surpassed $35 back in June, but retreated shortly after, just like it did after reaching a new high a few weeks ago. There certainly seems to be some resistance at the $35 price point, and the last time the shares reached that price, it declined to $32 before rising again. Currently, it looks like the share price is stuck in a range, and it is also trading under its 20-day moving average, which it recently fell below, suggesting a further decline may be on the way.
Bottom line
Maple Leaf Foods is a stock that has done very well in 2017 when you consider how poorly the TSX has been year-to-date. I would be surprised if the stock is able to climb over $35, and I think there is a greater possibility that the share price could decline to $33 and continue in the range that it has been in for the past several months.
Unfortunately, with a dividend yield of just over 1%, there is minimal benefit to holding the stock, unless you expect it to appreciate in value, and if you’ve made a good gain already, you might want to consider cashing out.
