BUA Foods presents a unique case. Revenue surged past N1.5 trillion in 2024, profits nearly tripled, and margins expanded.
However, the stock’s performance tells a different story. The market seems unconvinced.
The stock, after an impressive 198% rally in 2023 and another 115% climb in 2024, has lost momentum, slipping 10% year-to-date as of the close of trading on Friday, February 14, 2025.
Has the market lost faith, or is this merely a pause before the next leg up?
A business in full stride
BUA Foods is not just growing; it is asserting its dominance across multiple product categories.
The company posted a 109.3% surge in total revenue in 2024, reaching an impressive N1.53 trillion, a testament to both strong demand and strategic pricing.
- The sugar division, BUA’s flagship product, remained the backbone of operations, generating N733.8 billion, a 74% increase, despite a 12% decline in volume, highlighting the company’s ability to pass on costs through pricing.
- Meanwhile, the flour segment emerged as the biggest growth driver, soaring 172% to N589.5 billion, fueled by both rising demand and inflation-driven price adjustments.
- Not to be outdone, pasta revenues surged 125% to N197.6 billion, supported by a 24% expansion in production volume.
- Even the rice division, which has historically faced supply chain volatility, saw 183% revenue growth.
These are not marginal gains; they are the kind of figures that force competitors to take notice.
Net margins climbed to 18.01% from 15.37%, return on equity soared to 62.77%, and the company strengthened its balance sheet, slashing its debt-to-equity ratio from 4.08x to 0.75x. A clear message: this is a business getting leaner, sharper, and more profitable.
Management’s take:
BUA Foods’ leadership is not oblivious to the numbers. In its latest commentary, management emphasized that efficiency and scale remain top priorities.
“Our focus is on driving sustainable growth while optimizing our cost structure,” the company stated, highlighting its ability to expand without compromising profitability.
On the balance sheet improvement, management credited strategic deleveraging and better cash flow management, stating,
“We have significantly reduced our debt exposure, strengthening our financial position to support long-term expansion.”
Valuation vs. Reality
Yet, the stock market seems unimpressed. BUA Foods started 2025 at N415 but closed at N373.50 as of February 14, 2025, languishing 10% YtD and below its recent high.
Investors hesitate, citing its lofty P/E ratio of 24.46x, P/B of 17.05x, and P/S of 4.89x multiples that scream “expensive” in a market where the sector’s average P/E is 11.6x.
But what do these numbers really mean?
- Price-to-Earnings (P/E): 24.46x vs. sector 11.6x
This means investors are paying N24.46 for every N1 of profit the company generates. Compared to the sector’s average of 11.6x, BUA Foods appears almost twice as expensive as its peers on an earnings basis. High P/E ratios usually indicate strong growth expectations, but they can also suggest an overheated stock. - Price-to-Book (P/B) – 17.05x : A P/B ratio of 17.05x means BUA Foods trades at 17 times its net asset value. In simpler terms, investors are not just valuing the company based on what it owns today but are pricing in future profitability and growth potential.
- Price-to-Sales (P/S) – 4.89x
This means that for every N1 of revenue BUA Foods generates, investors are willing to pay nearly N5. This is a premium valuation, but it signals strong investor confidence in the company’s ability to convert sales into profits.
But are these numbers misleading? The PEG ratio, at 0.17x, tells a different story, one of a company growing at breakneck speed yet being priced with skepticism.
The Price/Earnings-to-Growth (PEG) ratio refines the traditional P/E ratio by factoring in the company’s earnings growth.
This ratio means that despite its seemingly high P/E ratio, BUA Foods’ earnings are growing so rapidly that the stock’s valuation is actually more reasonable than it looks at first glance and might be undervalued relative to its growth potential.
In essence, while traditional valuation metrics make BUA Foods look expensive, the PEG ratio tells a different story:
Investors are hesitant, but the company’s growth trajectory suggests they shouldn’t be.
BUA Foods isn’t just a premium stock; it’s a premium stock growing at a rate that justifies the premium.
The liquidity question
Another factor that might be holding the stock back? Liquidity. Despite its fundamental strength, BUA Foods is the 92nd most traded stock on the NGX in the past three months.
The float remains tight, and ownership is concentrated. This means that even minor selling pressure can weigh disproportionately on the stock price.
A temporary stall or a buying opportunity?
BUA Foods has rewarded patient investors handsomely. It increased dividends by 22% to N5.50 per share, showing its commitment to rewarding shareholders.
Operating cash flow per share sits at N24.51, reinforcing its ability to generate real value beyond earnings.
With this operating cash flow per share, the company has enough flexibility to raise dividends without straining its finances. A higher payout could attract more dividend-seeking investors, boosting demand for the stock.
Meanwhile, analysts peg the 12-month price target at N424.66, implying a 13.7% upside. For long-term investors, this is a test of conviction.
Short-term price weakness can obscure long-term potential, but history has shown that BUA Foods tends to reward those who stay on the course.
The real question: Will the market wake up to BUA Foods’ strength, or will it remain distracted by valuation noise?