Amidst a daily loss of -2.88% and a 3-month decline of -6.94%, investors in JM Smucker Co (SJM, Financial) are facing a conundrum. With a Loss Per Share of $0.87, the question arises: Is the stock modestly undervalued? This article delves into the valuation analysis of JM Smucker Co (SJM), inviting readers to explore the financial nuances that might reveal an investment opportunity.
Company Introduction
JM Smucker Co is a staple in the packaged food industry, with a significant presence in the U.S. retail channel and a diverse portfolio that includes coffee, pet foods, and consumer foods. With a market cap of $12.70 billion and a current stock price of $119.52, the company's valuation compared to its intrinsic value, as estimated by the GF Value of $143.92, suggests a potential undervaluation. This section will examine JM Smucker Co's financials and market positioning to provide a clearer picture of its true worth.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, combining historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. JM Smucker Co (SJM, Financial)'s stock appears modestly undervalued when assessed against this benchmark. The GF Value Line suggests a fair trading value that the stock should gravitate towards. If a stock trades significantly below this line, as JM Smucker Co does, it may indicate higher future returns relative to its growth.
Given JM Smucker Co's valuation, the stock's long-term return potential appears favorable when juxtaposed with its business growth trajectory.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. JM Smucker Co's financial position, with a cash-to-debt ratio of 0, places it at the lower end of the Consumer Packaged Goods industry. However, its overall financial strength has been given a fair rating of 5 out of 10 by GuruFocus. This assessment is crucial for investors considering the stock's financial resilience.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. JM Smucker Co has maintained profitability for 9 out of the past 10 years, boasting an impressive operating margin of 16.97%, which is higher than 88.7% of its peers. Despite this, the company's growth rates in revenue and EBITDA are lagging behind industry averages, with its 3-year average revenue growth rate underperforming 56.01% of its industry counterparts.
ROIC vs. WACC
An insightful metric for evaluating a company's profitability is the comparison between its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). Ideally, a company's ROIC should exceed its WACC to indicate value creation. For JM Smucker Co, the past 12 months have seen a troubling ROIC of -210.78, starkly contrasted against a WACC of 4.26, suggesting challenges in generating cash flow relative to invested capital.
Conclusion
In summation, JM Smucker Co (SJM, Financial) is showing signs of modest undervaluation, with fair financial health and profitability. However, its growth ranking falls short when compared to industry peers. For a more detailed financial overview, interested parties are encouraged to review JM Smucker Co's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
