Assessing Cal-Maine Foods (CALM) Valuation After Recent Share Price Weakness

Cal-Maine Foods (CALM) has recently drawn attention after a period of weaker share performance, with the stock down over the past week, month, past 3 months and year. This has prompted investors to reassess its current valuation.

See our latest analysis for Cal-Maine Foods.

The recent 4.4% 7 day share price decline and 15.5% 3 month share price pullback come against a 1 year total shareholder return of an 18.2% decline, but a much stronger 3 and 5 year total shareholder return. This suggests that momentum has faded after a solid multi year run, while investors reassess growth prospects and risk.

If Cal-Maine Foods has you rethinking where you want egg exposure in your portfolio, it could be a good moment to widen the lens and consider fast growing stocks with high insider ownership.

With Cal-Maine trading at US$78.47, an indicated intrinsic discount of about 72% and a 22% discount to the current analyst price target, should you see value emerging here or is the market already pricing in future growth?

Price-to-Earnings of 3x: Is it justified?

On a P/E of roughly 3x, Cal-Maine Foods looks cheap against its recent share price of US$78.47 when you compare it to similar food companies.

The P/E multiple tells you how much investors are currently paying for each dollar of earnings, which is especially relevant for a profitable, established producer like Cal-Maine. For this type of business, earnings tend to drive long term value, so a low multiple can suggest the market is placing a cautious label on those earnings.

Here, the gap is stark. Cal-Maine trades at a P/E of 3x versus the US Food industry average of 19.5x and a peer average of 20.2x. This is a steep discount that signals the market is pricing its earnings much lower than many competitors. At the same time, our fair P/E estimate of 2.9x sits just under the current 3x level. This points to only a small premium over where the multiple could settle if it moved in line with that fair ratio.

Explore the SWS fair ratio for Cal-Maine Foods

Result: Price-to-Earnings of 3x (UNDERVALUED)

However, you also need to weigh risks such as recent annual revenue and net income declines, as well as any shift in demand for higher cost specialty egg products.

Find out about the key risks to this Cal-Maine Foods narrative.

Another way to look at value: the SWS DCF model

The low 3x P/E suggests Cal-Maine Foods looks cheap, but our DCF model paints an even starker picture. On that view, the shares are trading at roughly a 71.7% discount to an estimated fair value of about US$277.36. That is a big gap, so is the market too pessimistic or is the model too optimistic?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Cal-Maine Foods for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 878 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Cal-Maine Foods Narrative

If you look at these numbers and reach a different conclusion, or simply want to test your own assumptions, you can build a custom view in just a few minutes with Do it your way

A great starting point for your Cal-Maine Foods research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If you are reassessing Cal-Maine Foods, it is a smart time to expand your watchlist with fresh ideas that match your style and risk comfort.

• Target potential value opportunities by scanning these 878 undervalued stocks based on cash flows that currently trade at prices the market may not fully appreciate.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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