What is the average price-earnings ratio for the food and beverage sector?
The food and beverage sector includes a variety of corporate groups specializing in the production of a variety of foods and beverages, including specialty health foods, meat products, eggs, soft drinks, beer and liquor. One indicator that investors use to assess the relative value of a company is price-earnings ratio.
Price earnings ratio is a relative metric calculated by dividing the current stock price by earnings per share. Depending on the EPS used in the denominator, price-earnings ratio can be calculated based on the forecasts of analysts for the most recent 12-month EPS, called trailing EPS, or future annual EPS, called leading EPS. This latter is the most used one. If the company makes a negative return, the price-earnings ratio is meaningless. Price earnings ratio changes constantly as the company’s stock price and earnings change.
- Price earnings ratio is a relative metric calculated by dividing the current stock price by earnings per share.
- The food and beverage sector includes various corporate groups that specialize in the manufacture of various foods and beverages.
- Some of the industries involved are specialty health foods, meat products, eggs, soft drinks, beer, and liquor, each of which may have a different price-earnings ratio.
- Due to the highly biased distribution of price-earnings ratios within the industry, the industry’s average price-earnings ratio can be a misleading indicator.
- Price-earnings ratio helps determine whether a stock is worth it, as the success or failure of competition in this diversifying industry affects earnings.
Understand average price-earnings ratios in the food and beverage sector
The overall goal of price-earnings ratio is to assess the attractiveness of the stock price when compared to the price-earnings ratio. Helps determine if a stock is valued fairly. A high price-earnings ratio indicates that the market recognizes the company as having high growth potential and the ability to generate high returns in the future, but it can also be overvalued. A low price-earnings ratio may indicate a company with no growth potential or an undervalued company.
If the distribution of price-earnings ratios within an industry is highly biased, the industry’s average price-earnings ratio can be a misleading indicator. For example, in the top three companies, Anheuser-Busch InBev has a higher price-earnings ratio than other companies. The mean P / E ratio represents a misleading relative value metric because there are some large outliers. Instead, analysts often calculate other measurements, such as the median, to assess typical P / E ratios within the food and beverage sector.
Below are the price-earnings ratios of the three major food and beverage companies as of June 2020.
|Price-earnings ratio of the top three food and beverage companies|
|PepsiCo Co., Ltd.||25.49|
Source: Y Charts.
Price earnings ratio is an important indicator for assessing a company’s financial value. From 2020 onwards, what helps food and beverage companies remain competitive and profitable, and thus maintain value, is the need to focus on key segments that are growing globally.
Plant-based burgers are a successful product for food and beverage companies to address the growing number of vegetarians and vegans around the world. It is also an important item for individuals who want to reduce meat consumption. Given its popularity, consumers will continue to look for additional options for plant-based meats that are not as mature as burgers. Plant-based alternatives to chicken, fish and pork are notable areas.
Cannabis-based products are another important area for growth. Despite the regulatory challenges, many new cannabis food and beverage products were seen in 2019, but there is still an entire area to explore and grow. The general public’s knowledge of cannabis products is still limited. Food and beverage companies need to market and educate consumers about what these products are, what their quality is, and why they need to buy them.
The success or failure of competition in this diversifying industry affects earnings, and price-earnings ratio helps determine whether a stock is worth it.