Stocks are generally categorized as growth, income (dividend paying), and value, or a combination thereof. It is a rare occurrence when stocks fall into all three categories — that is, they pay a decent dividend, are expected to deliver double-digit growth, and can be considered undervalued at current trading prices.
It is therefore exciting when I come across a company that checks off all three boxes. It doesn’t happen often, but when it does, I rarely pass up the opportunity. Today, one stock that can be considered a triple-threat is Premium Brands Holdings (TSX:PBH).
Despite posting fourth-quarter and year-end results that beat on both the top and bottom lines, Premium Brands fell almost 5% yesterday. This is a company that is setting new financial records, beating estimates, and doing nothing but execute.
Top growth stock
A growth stock is a company that is expected to grow by at least 10% on an annual basis. In 2018, Premium Brands has grown revenue and earnings per share by 37.6% and 12.4% over the full year 2017. Over the past five years, it has grown earnings by a compound annual growth rate of more than 50%!
It’s not done growing. The company has guided to 22% revenue growth and 31% adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) growth in 2019. Analysts have similar expectations and estimate the company will grow earnings by 24% on average over the next five years.
Top dividend stock
Premium Brands is a Canadian Dividend Aristocrat having raised dividends for six consecutive years. It’s a streak that will be extended again this year, as it announced a 10.5% increase to its dividend yesterday.
It has a decent yield (2.59%) and its dividend is well covered by cash flows. It has a free cash flow coverage ratio of 38.1%, down from 38.5% in 2017. Given its expected growth rates, there is no reason why the company can’t continue its impressive streak of double-digit dividend growth.
Top value stock
At first glance, the company might look fairly valued as it is trading at 24 times current earnings. However, this is a growth company. Looking forward, it is trading at a cheap 15 times next year’s earnings and it has a P/E to growth (PEG) ratio of 0.90. A PEG under one is a sign that the company’s share price is not keeping up with expected growth rates. As such, it is considered undervalued.
Analysts agree. They have a one-year price target of $93.70, which implies 33% upside. Even the lowest target on the street, that of $82, is 15% above today’s share price.
Premium Brands has an attractive risk/reward profile. It has struggled mightily over the past year, losing almost 33% of its value. I consider the sell-off to be overdone. You can now pick up a quality company with impressive growth rates and a growing dividend at a great price.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Mat Litalien has no position in any of the stocks mentioned.