No. of Recommendations: 5
Nestle trailing 5-yr EPS growth is 4.7%, 10-yr EPS growth is 3%.
Why do you expect future growth to be 9%?
And with growth in low single digits, 25 PE is very unlikely.
Most food companies trade at low PEs.
Nestle might emulate Coke; multi-decade stagnant share price as valuation compresses to new low growth reality.My thoughts exactly. Nestlé's sales and income are basically stagnant. If they were at 10 times current net income, I think it would be a good investment, with low (but not zero) chance of losing a lot of market share, and providing for a decent return. But at >25x net income? It seems to me the only solid argument is that the multiple has often been higher in the past, so maybe the multiple will revert to what it was in the past, but what is the specific reason for believing this?
I just bought shares in a different European company X with similar sales and net income in the last 5 years, compared to Nestle:
2019 2020 2021 2022 2023
Nestle: 96 96 96 103 111
13 14 19 10 13
X: 283 272 285 299 356
21 14 22 53 27
Both companies show slow but unspectacular growth, and both companies are having a bad, but not catastrophic, year, with sales and earnings down a few percent compared to last year. Nestlé has a market cap of $258b, about 21 times ttm earnings, and my company X has a market cap of $55b, 3 times ttm earnings.
Any guesses about which falling knife I'm talking about? And any thoughts about why Nestle would be worth so much more?
