Some things are just hard to explain away, like why a stock will dramatically outperform at certain times of the year. But that’s exactly the case for Performance Food Group, a company very few investors have even heard of let alone invested in.
Performance Food Group is a standout candidate over the next couple of months for investors who are willing to bet on the increasingly embraced idea of seasonality. It’s no secret that the Santa Claus rally appears most years but what’s less well known is that some stocks fare much better than the indices during this period too. Chief among them is Performance Food Group.
Here is how bizarre the trend has been. In the coming 8 week period, PFGC has climbed by 14.14% according to historical averages. Multiply that number by 6 and you end up with an annualized return so high it virtually defies imagination.
- Performance Food Group (PFGC) regularly has enjoyed a 14.14% increase in stock value during an 8-week holiday period, with an 87.5% accuracy rate over the past 8 years.
- Despite economic fluctuations, PFGC has expanded its sales from $13.6 billion to $53.3 billion over the past decade.
- Analysts predict a 23.7% upside for PFGC, aligning with its historical seasonal trend, and potentially boosting its market capitalization by over a billion dollars.
Will PFGC Pop This Year?
The average rise of PFGC over the coming two month period is so dramatic that we investigated whether it has had periods of significant underperformance. And indeed nothing is perfect, not even the seasonal track record of this firm but it comes close.
Performance Food Group has spiked higher in 7 of the past 8 years over the subsequent 8 week period, which places an accuracy rating on the firm of 87.5%.
It’s important to highlight that this isn’t some fly by night firm that can easily be manipulated. It’s a $9.4 billion company that, if seasonal tendencies play out, has the potential to add another billion and change to its market capitalization before the end of the year.
Admittedly, a fundamental analysis doesn’t suggest the company is a screaming buy at this time with fair value sitting at $64 per share using a DCF analysis. However, analysts are more optimistic about its prospects and have pegged fair value at $74 per share, which would correspond to a 23.7% upside in line with the seasonal trend.
10 Years of Data Cannot Be Ignored
To confirm that we were dealing with a solid company with good financials we scrutinized the profit and loss statement for the past ten years and found something quite interesting. In boom and bust cycles, flash crashes and health scares, wars and foreign invasions, the company managed to grow each and every year without fail.
The only blip we saw in its top and bottom line was back in 2020 on the operating income line item that went marginally negative. Otherwise, the financials have been impeccable with earnings per share steadily increasing. Another interesting ratio that caught our attention was the rock bottom price-to-sales ratio of just 0.2x.
If there was one fundamental gotcha it is the relatively low gross margins the firm consistently reports, typically in the 11-12% range. Still, management has grown sales from $13.6 billion in sales to $53.3 billion in ten years so even with those margins it has managed to build a fantastic business.
And it’s no surprise that the holiday season, which leads to a spike in present-buying and other retail purchases, also carries over to the food industry as corporate parties and family gatherings are mainstays. Equally, it’s no surprise that savvy investors have spotted this stock has a tendency to rally in anticipation of stronger sales at this time of year.