CAL-MAINE FOODS INC (NASDAQ:CALM) Stands Out as a Strong Value Investment with Solid Fundamentals and High Dividend Yield

CAL-MAINE FOODS INC (NASDAQ:CALM) has been recognized through a "Decent Value" screening method, focusing on stocks with solid fundamental valuations, good profitability, stable financials, and reasonable growth potential. This method follows value investing principles, targeting companies trading below their true worth but with strong financial foundations for future performance. The strategy selects stocks with a valuation score above 7, confirming they are priced well compared to their fundamentals, while also requiring good scores in profitability, financial stability, and growth to avoid undervalued but weak investments.

Valuation: A Core Focus for Value Investors

CALM’s valuation metrics are notable, receiving a score of 7 out of 10 in ChartMill’s analysis. The stock trades at a Price/Earnings (P/E) ratio of 4.32, much lower than the industry average (33.96) and the S&P 500’s P/E of 26.51. This implies the stock is priced at a deep discount relative to its earnings. CALM’s Enterprise Value to EBITDA and Price/Free Cash Flow ratios are also lower than 96.6% and 94.4% of its peers, respectively. These figures suggest the market may be underestimating the company’s ability to generate cash, a key consideration for value investors looking for safety margins.

Financial Stability: A Solid Foundation

Financial strength is vital in value investing, as it minimizes risk. CALM performs well here, with a top Health rating of 10. The company has no debt, a rare advantage that removes interest costs and improves stability during economic challenges. Its Altman-Z score of 10.82 indicates very low bankruptcy risk, better than 94.4% of industry peers. Liquidity is also strong, with a Current Ratio of 6.38 and a Quick Ratio of 5.42, both in the top 3% of the sector. This financial resilience helps protect against market fluctuations, an important factor for value-focused investors.

Profitability: Strong Margins and Efficient Operations

Profitability is another area where CALM performs well, scoring 9 out of 10. The company has a 28.6% profit margin and a 36.1% operating margin, outperforming nearly 98% of competitors in the Food Products industry. Its Return on Invested Capital (ROIC) of 42.3% is much higher than its cost of capital, showing effective use of resources to create value. These high margins and returns are supported by steady earnings and cash flow growth over the past five years. For value investors, strong profitability strengthens the argument that the stock is undervalued relative to its earnings potential.

Growth: Historical Success vs. Future Uncertainty

While CALM’s Growth rating is a modest 5, its past performance is impressive. Revenue increased by 83.2% over the last year, with a 5-year average annual growth rate of 25.8%. Earnings per share (EPS) jumped by 393% year-over-year, driven by high demand and operational efficiency. However, analysts predict declines in both EPS (-64.5%) and revenue (-12.2%) in the coming years, likely due to post-pandemic demand adjustments. Value investors must balance this expected slowdown against the stock’s low valuation and high profitability to decide if the risks are already reflected in the price.

Dividend: An Additional Benefit

CALM provides an appealing 8.9% dividend yield, significantly higher than the industry average (4.71%) and the S&P 500 (2.4%). The payout ratio of 27.1% is manageable, leaving room for reinvestment or future dividend increases. Although the company recently cut its dividend, its 10-year history of payments adds reliability. For value investors, a high yield paired with a low valuation can improve total return prospects.

Conclusion: A Strong Value Option

CAL-MAINE FOODS INC offers a strong case for value investors, with its low valuation, excellent financials, high profitability, and attractive dividend. While short-term growth concerns exist, the stock’s safety margin—shown by its discounted multiples and solid fundamentals—may counter these risks. Investors should perform additional research to determine if the expected earnings drop is temporary or long-term.

For more stocks matching this "Decent Value" screening approach, see the full list of results here.

Disclaimer: This article is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.