Editor’s Note
This analysis examines the factors behind Kerry Group’s prolonged underperformance relative to its peers, exploring whether current challenges present a value opportunity or a sign of deeper strategic issues.
If you’ve been following Kerry Group lately, you might be wondering whether it’s time to hold steady, jump in, or cut your losses. After all, not every day do you see a company with as storied a past as Kerry Group trading more than 26% below its price from five years ago. In just the past year, the stock has slipped another 15.9%, and year-to-date it’s off by 18.5%. There’s no denying these numbers look a bit rough at first glance.
So, what’s driving this slump, and is it possibly masking opportunity? Some of it comes down to broader market trends, like the ongoing shift in consumer preferences and supply chain volatility that have weighed on food and ingredient giants across Europe. While recent weeks have been choppy, with the stock down 3% over the past 7 days, the bigger question is whether the market is missing something important about Kerry’s underlying value, or rightfully pricing in new risks.
Here’s an interesting starting point: Kerry Group currently earns a valuation score of 5 out of 6, which means it checks almost every undervalued box we look for. But does this suggest a hidden bargain, or is there more to the story? Let’s walk through the standard valuation methods and see what they reveal. Stay tuned for what might be an even sharper way to judge the company’s worth before you make your decision.
The Discounted Cash Flow (DCF) model is a standard tool for estimating a company’s intrinsic value by forecasting its future cash flows and then discounting those amounts back to today’s value. In plain terms, it tries to answer the question: if we project what Kerry Group will earn in cash over the coming years, how much is that really worth right now?
Based on the latest calculations, Kerry Group’s current Free Cash Flow sits at €751 million, with analysts projecting steady growth. Over the next five years, expert estimates suggest Free Cash Flow will reach close to €874 million by 2029. Simply Wall St extrapolations see it continuing to rise beyond that. All projections are in euros, and these future figures reflect both analyst input and model-based extrapolation past 2029.
Running these forecasts through the DCF model, the estimated fair value per share lands at €125.12. Compared to the current price, this implies the stock is trading at a 39.6% discount. In other words, the market price is much lower than the calculated intrinsic value using these forward-looking cash flows.
The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies like Kerry Group, as it connects a company’s market price with how much it earns. A lower PE can indicate a bargain if earnings are strong and sustainable, while a high PE often means investors expect faster growth or are willing to take on more risk.
What is considered a “fair” PE ratio depends on factors like a company’s expected earnings growth and the perceived level of risk in its business. Higher-growth, lower-risk companies can justify a richer PE, while slower-growing or riskier firms typically see a discount.
Currently, Kerry Group is trading at a PE ratio of 17.4x. That is a bit higher than the food industry average of 16.4x, but below the average for its direct peers, which sits at 21.3x. To get a more tailored measure, Simply Wall St calculates a proprietary “Fair Ratio” for each company. Kerry Group’s Fair Ratio is 17.9x, reflecting its growth prospects, profitability, industry context, and company-specific risks.
The Fair Ratio goes beyond the usual industry comparison since it weighs in details like projected earnings expansion, profit margins, and market capitalization, offering a more nuanced estimate of where the PE “should” be. When looking at Kerry’s current PE of 17.4x versus its Fair Ratio of 17.9x, the difference is minor. This suggests the stock is trading roughly in line with its fundamentals.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply your story about a company: how you think its business will perform in the future, what might drive its revenues, profit margins, and how those numbers stack up against today’s share price. Narratives connect the dots between your assumptions about the company’s future, your estimates of fair value, and your investment decision. This allows you to quickly see if the shares look attractively priced or not.
On Simply Wall St, Narratives are easy to use and available to everyone in the Community page, letting you compare your perspective to those of millions of other investors. Each Narrative instantly updates when new news or earnings come out, so your conclusions stay relevant. By matching your Narrative fair value against the current price, you can more confidently decide when to buy or sell.
