Friday 13 June 2014

Analysis of General Mills

General Mills, an American food manufacturer

Company: General Mills

Business: An American food company. They have a large portfolio of products within Baking Products, Cereals, Ice Cream, Meals, Pasta, Pizza, Snacks, Vegetables and Yogurt. Some of the well known brands are: Cheerios, Green Giant, Häagen-Dazs, Old El Paso, Wheaties and Yoplait. For the full list of General Mills brands.

Active: World wide with sale of products in over 100 countries and manufacturing in 30 of those.

P/E: 19.8

This company was analysed due to a request on Twitter from Long Investor.

Contrarian values of P/E, P/B, ROE as well as dividend for General Mills

The P/E of General Mills is too high for me with 19.8 and the P/B is far too high with 5.5 which gives in total a no go from Grahams formula. The earnings to sales are excellent with 10% and the ROE is even better with 27.8%! The book to debt ratio I do not like that much since it is at 0.5. In the last five years they have had a yearly growth rate of 3.9% which is great and this gives us a motivated P/E of 13 to 16 which means that they are slightly overvalued on the market today. They pay an acceptable dividend of 2.4% which represents less than 48% of their earnings so they should be able to keep increasing it.

Conclusion: Both Graham and I say no to this company due to too high P/E and P/B. The ROE is excellent and the dividend is fully ok. I believe that General Mills just like its peers (analysis of Nestlé, analysis of Unilever etc.) are cheap to fairly valued in the market today and I understand if people decide to invest in them but for me they are still too expensive and I would love to step in after a more massive drop.

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