NSRGF - Why I Avoid Nestle Despite The Drop In Stock Price
2024-04-05 10:30:32 ET
Summary
- The ongoing selling pressure in Nestlé S.A. stock, which is down 25% from its all-time high, has piqued my interest.
- For the first time in more than three years, Nestle's valuation looks compelling of course, but does that make Nestlé shares a good investment?
- Upon close evaluation, I have come to the conclusion that Nestlé is currently uninvestable, and in this article I give the three main reasons for this admittedly sobering conclusion.
Introduction
Consumer staples stocks are most valued by investors for their low volatility and their reliable (but usually rather slow) growth and returns. The Swiss giant Nestlé S.A. ( NSRGY , NSRGF ) fits this pattern very well, at least on the surface. It is a huge company (market capitalization of CHF 250 billion or $278 billion) with a very long history and operations around the world. It owns a large number of leading brands in chocolate, confectionery, cereals, frozen foods, dairy products, ice cream, and pet care. Also worth mentioning is its 20.1% stake in French personal care company L'Oréal S.A. ( LRLCY , LRLCF , see my in-depth review ), which is currently worth around CHF 44 billion, or $49 billion.
However, despite the company's undoubtedly strong portfolio, its stock is currently performing very poorly. NSRGY shares have fallen by more than 25% from their all-time high at the end of 2021. Looking at the performance on the SIX Swiss Exchange in its home currency - the Swiss franc - the stock is down approximately 26% from its all-time high. According to Seeking Alpha's valuation dashboard , Nestlé stock is currently trading at a forward price-to-earnings ratio of 18, which compares extremely favorably to the long-term average of over 23. The current dividend yield of 3.16% is also well above the long-term average of 2.51%....
Why I Avoid Nestle Despite The Drop In Stock Price