2 Reasons to Like CALM (and 1 Not So Much)

Over the past six months, Cal-Maine’s shares (currently trading at $89.12) have posted a disappointing 18% loss, well below the S&P 500’s 4.8% gain. This might have investors contemplating their next move.

Following the pullback, is now an opportune time to buy CALM? Find out in our full research report, it’s free.

Why Does Cal-Maine Spark Debate?

Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ:CALM) produces, packages, and distributes eggs.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Cal-Maine’s 18.5% annualized revenue growth over the last three years was impressive. Its growth surpassed the average consumer staples company and shows its offerings resonate with customers.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Cal-Maine has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 22.5% over the last two years.

One Reason to be Careful:

Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Cal-Maine’s revenue to drop by 36.1%. This projection doesn't excite us and implies its products will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Final Judgment

Cal-Maine’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 28.5× forward P/E (or $89.12 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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