One FTSE 250 stock that has caught my eye recently is Premier Foods (LSE: PFD). Let’s dive deeper into it to establish whether it could be a good addition to my holdings.
Food producer
As a quick introduction, Premier Foods is one of the largest food producers in the UK. With over 4,000 employees working across 15 sites throughout the country, it supplies retail, wholesale, and food service businesses with many iconic brands under its umbrella. These include Bisto, Oxo, and Lloyd Grossman to name a few.
Over the past 12 months, Premier shares have been on an upward trajectory. As I write, they’re trading for 126p. At this time last year, they were trading for 108p, equating to a 16% increase. In the same period, the FTSE 250 index is down 2%.
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Pros and cons
Let’s take a look at some of the pros and cons of buying Premier shares today. To start with, I believe it possesses defensive traits. This is because food is an essential requirement no matter the economic or political outlook. Furthermore, Premier is in a strong position as it produces branded premium goods, as well as non-branded essential items. The latter could appeal to the wallet-conscious consumer, especially in a cost-of-living crisis like now.
Next, Premier is making a concerted effort to grow its business, which could boost performance and shareholder returns. It has a consistent history of acquiring up-and-coming as well as established businesses to increase its market share and boost growth and performance.
Finally, Premier shares look good value for money at current levels. They’re trading on a price-to-earnings (P/E) ratio of just 11. In addition to this, the shares would boost my passive income stream through dividends. Premier’s current dividend yield stands at 1.2%. This is just below the FTSE 250 average of 1.5%-2%. I am aware that dividends are never guaranteed. They can be cancelled at any time by the business.
To fully consider buying Premier shares, I must note some risks too. To start with, the company has a fair bit of debt on its balance sheet. Debt can be an issue if a business is not growing or struggling to service the debt. This can impact investor sentiment as well as returns.
Another issue that could hamper Premier’s performance and returns is the current cost-of-living crisis. It could see its branded items (of which some are classed as premium) experience a drop in sales as consumers look to make their budgets stretch further and turn to cheaper alternatives.
A FTSE 250 stock I would buy
Upon reviewing the positives and negatives, I’ve decided I would be willing to add Premier shares to my holdings if I had the spare cash to do so.
For me, the pros outweigh the cons, specifically the defensive traits the business possesses as well as its market position, brand power, and diversification. Its growth aspirations as well as the current passive income opportunity also helped me make my decision.
