With no single headline event driving attention, Mission Produce (AVO) is on investors’ radars after recent share performance and underlying business metrics began to attract closer scrutiny of its avocado focused model.

At a share price of $14.81, Mission Produce has seen a 30 day share price return of 11.19% and a 90 day share price return of 21.29%. The 1 year total shareholder return of 48.69% contrasts with a weaker 5 year total shareholder return of 25.62%, suggesting recent momentum has picked up after a tougher longer term stretch.

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With shares up strongly over the past year, and an indicated 17.07% gap to one intrinsic value estimate plus a smaller 9.72% discount to analyst targets, the key question is simple: is Mission Produce still undervalued, or is the market already pricing in future growth?

Price to earnings of 31.7x: Is it justified?

Mission Produce trades on a P/E of 31.7x, which is elevated relative to both the US Food industry and its closest peers at the current $14.81 share price.

The P/E multiple compares what investors are paying today for each dollar of current earnings. For a company like Mission Produce, where earnings have grown by 2.9% per year over the past 5 years and are forecast to grow further, a higher multiple often reflects expectations that those profits will continue to build over time.

Here, the market is assigning a P/E of 31.7x, versus 21.4x for the broader US Food industry and 22.7x for the peer group. That is a sizeable premium and also stands well above the estimated fair P/E of 14.8x, a level our fair ratio work suggests the market could gravitate toward if expectations cool or earnings catch up.

Result: Price-to-earnings of 31.7x (OVERVALUED)

However, reliance on a single produce category and a P/E premium to both industry and peers leaves the story vulnerable if pricing or earnings expectations reset.

Another view on value: cash flows tell a different story

While the P/E of 31.7x flags an expensive entry point, the SWS DCF model points in the other direction, with Mission Produce trading at $14.81, about 17.1% below an estimated future cash flow value of $17.86. That raises a key question: are current earnings or long term cash flows the better guide for you?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Mission Produce for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 58 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment mixed between a rich P/E and an apparently supportive cash flow view, this is a good moment to check the details yourself and act while the data is fresh. To see what optimism in the numbers looks like, review the 2 key rewards

Looking for more investment ideas?

If Mission Produce has you thinking more broadly about opportunities, now is the moment to widen your search and see what else the market is offering.

• Spot potential bargains early by scanning a curated set of screener containing 23 high quality undiscovered gems before they attract wider attention.
• Strengthen your downside protection by focusing on companies in the 72 resilient stocks with low risk scores that score well on resilience.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.