Don’t buy Unilever plc, Greggs plc or Just Eat plc until you’ve seen this

Could these 3 food-focused stocks be overvalued? Unilever plc (LON: ULVR), Greggs plc (LON: GRG) and Just Eat plc (LON: JE).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Greggs (LSE: GRG) continue to endure a very challenging 2016, with the high street baker recording a fall in its share price of 20% since the turn of the year. That’s despite Greggs’ current strategy being highly successful in turning the business around, with a focus on closing unprofitable stores and on new and better value products having a positive impact on its financial performance.

A possible reason for Greggs’ lacklustre share price performance in recent months could be its valuation. Greggs may be a high quality business with a bright long-term future, but its price-to-earnings (P/E) ratio of 17.8 appears to be rather high. With Greggs expected to record a fall in its bottom line in the current year of 5%, its share price could move lower before it gains ground.

Of course, Greggs seems to have a relatively defensive business model due to its focus on value. But with a number of other food-focused businesses having lower valuations, there may be better investment potential available elsewhere.

Priced to go?

Also trading on a relatively high P/E ratio is fellow food company Just Eat (LSE: JE). The online takeaway delivery service has a rating of 38.3 and for many investors this may be enough to put them off investing in the company.

However, unlike Greggs, Just Eat has superb growth prospects over the next couple of years. For example, it’s expected to record a rise in its bottom line of 51% in the current year and a further 47% next year. This puts Just Eat on a price-to-earnings-growth (PEG) ratio of only 0.8, which indicates that its shares could move much higher over the medium-to-long term.

As well as having strong growth potential, Just Eat is also a relatively well-diversified business. It operates in a number of different territories across the globe and this provides it with a lower risk profile than a country-specific stock. And with the popularity of online ordering in the takeaway space being on the up, now could be a perfect time to buy Just Eat.

Long-term strengths

Meanwhile, Unilever (LSE: ULVR) also trades on a high P/E ratio, with the company having a rating of 20.7. While this may be relatively high when compared to the wider index, for a global consumer goods company it’s not particularly unappealing. In fact, Unilever’s rating has been higher in the past and could increase in future if it’s able to deliver on its upbeat growth forecasts.

For example, Unilever is due to deliver a rise in its bottom line of 10% this year and a further 8% next year. With it having a very well-diversified portfolio of goods as well as being geographically diversified, it seems to offer a very appealing risk/reward ratio. Certainly, value investors may wish for a lower P/E ratio, but Unilever seems to be well worth a rating of over 20, thereby making it a strong buy for long-term investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »