Nestle Shares Relative Valuation and Peer Comparison

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The company will be evaluated considering a group of 5 peer companies according to the market classifications. Nestle shares relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars). From this, we will arrive at a combined peer rating for the company. Companies considered in this analysis are as follows.

  1. Britannia
  2. Hindustan Unilever
  3. GSK Consumer
  4. Nestle
  5. ITC



About the Company:

Nestle relationship with India dates back to 1912 when it started operating as The Nestle Anglo-Swiss Condensed Milk Company (Export) Limited. The business then was of importing and selling finished milk products in the Indian market. Nestle India currently operates famous brands like Nescafe, Maggi, Milkybar, Kit Kat, Bar One, Milkmaid and Nestea. The company has also recently introduced products of daily consumption such as Nestle Milk, Nestle SLIM Milk, Nestle Dahi and Nestle Jeera Raita.

The company primarily operates in the FMCG industry where market dominance is achieved through scale, branding and distribution capacities. Nestle in India is driven by the agenda of sustainable growth and 98% of their revenue are from the products manufactured in India only. The company has 8 large scale manufacturing plants across India out of which 5 are involved in manufacturing the Maggi brand products. The company has also commissioned a new fully dedicated Maggi plant in Gujarat.

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Read More Here: Nestle Fundamental Analysis and Future Outlook

Get the Excel Dashboard used for this analysis from below:

Nestle Shares Relative Valuation and Peer Comparison
1. Market Capitalization (★ ★ ★ ☆ ☆)

Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, Nestle has the third-highest market capitalization followed by Britannia and GSHCL. This shows the third-highest Enterprise Value amongst the peers. Therefore this category gets 3 stars in Nestle shares relative valuation.



2. Price/Earnings Ratio (★ )

The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued. Nestle shares have the highest P/E and its way above industry average, so its shares are overvalued. Therefore this category gets 1 star in Nestle shares relative valuation.

Nestle Shares Relative Valuation and Peer Comparison
3. Price/Book Value Ratio (★ )

The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. Lower than average P/B shows undervalued and higher P/B shows overvalued. Nestle shares have the highest P/B amongst the competitors. Therefore this category gets 1 star in Nestle shares relative valuation.



Nestle Shares Relative Valuation and Peer Comparison
5.Price/Sales Ratio (★ )

The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. Nestle has the second-highest P/S ratio amongst the competitors which makes its shares highly overvalued. Therefore this category gets 2 star in Nestle shares relative valuation.

6.ROCE (★ ★ ★ ★ )

ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use. A higher ROCE implies a more economical use of capital and above-average ROCE is considered a good investment. Nestle has the second-highest ROCE amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Nestle shares relative valuation.

Nestle Shares Relative Valuation and Peer Comparison
7. Return on Assets (★ ★ ★ ★ )

The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. Higher the ROA better is the asset utilization by the company and higher the efficiency. Nestle has the second-highest ROA amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Nestle shares relative valuation.

8. Price/ FCF Ratio (★ )

This is calculated by dividing market capitalization by free cash flow of the company. A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. Nestle has the third-highest Price/FCF ratio amongst its peers and its way above the Industry average line. This shows that Nestle shares are highly overvalued. Therefore this category gets 3 stars in Nestle shares relative valuation.

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Nestle Shares Relative Valuation and Peer Comparison
9. Earnings Per Share (★ ★ ★ )

Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. Higher the EPS higher is profitability. Nestle is in the 2nd position with EPS also higher than the industry average. Therefore this category gets 4 stars in Nestle shares relative valuation.

10.Return on Equity (★ ★ ★ ★ )

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. Nestle has the 2nd highest ROE amongst the Peers and its also above the industry average. Therefore this category gets 4 stars in Nestle shares relative valuation.

The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5. The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star). The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.

Overall Relative Rating:

NESTLE SHARES (2.8/5)

This means the stock is nearly Fairly-Valued at the current price levels for FY 2021.

★ ★ ★ ☆ ☆

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Relative Valuation Summary
Market Capitalization ★ ★ ★ ☆ ☆
Price/ Earnings Ratio ★ ☆ ☆ ☆ ☆
Price/ Book Value Ratio ★ ☆ ☆ ☆ ☆
Dividend Yield ★ ★ ☆ ☆ ☆
Price to Sales ★ ★ ☆ ☆ ☆
ROCE ★ ★ ★ ★ ☆
ROA ★ ★ ★ ★ ☆
Price/ Cashflow ★ ★ ★ ☆ ☆
Earnings Per Share ★ ★ ★ ★ ☆
ROE ★ ★ ★ ★ ☆
Overall Peer Rating ★ ★ ★ ☆ ☆
Nestle Shares Relative Valuation and Peer Comparison

You can read more about the company on its website!
Investor Presentation.
For fundamental analysis of other listed companies click HERE!
For more Relative Valuation Ratings Click HERE!

Sources: Wiki, Investopedia

(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)



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