- Sanderson Farms is trading at an EV/EBITDA of less than 3x.
- The decline in chicken prices have had an adverse effect on the company’s performance. Despite this, higher volumes and lower costs have helped cushion the drop.
- Market is too pessimistic. Using analysts’ projections, the stock is cheap, trading at 11x 2016 EPS. With an almost debt-free balance sheet, Sanderson can weather any storm.
- A short squeeze should not be ruled out, as any positive development will push the stock up.
EV/EBITDA has the best backtest results among the popular market multiples. In this sequence of articles, I will present companies with EV/EBITDA of less than 4x.
Sanderson Farms (NASDAQ:SAFM) is a pure-play poultry company. It processes, produces, markets and distributes both fresh and frozen-chicken products. 90% of its products are sold in the U.S. The company has $181m in cash and only $10m in short-term debt. Growth is financed through internally generated cash flow. Its plant in Palestine is up to 50% capacity and will reach full production in May 2016.
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