Here is Why Sanderson Farms Stock is Still Undervalued

SAFM has increased 10% just in the past month

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Sanderson Farms, Inc. (NASDAQ:SAFM) is the third largest producer of poultry in the United States with more than 13.6 million chickens produced per week. SAFM is engaged in the production, processing, marketing, and distribution of fresh, frozen, and minimally prepared chicken. The poultry producer currently operate 12 poultry plants and one processing facility. 

Sanderson Farms stock has increased about 16% over the past 12 months and just hit a record high of $221.63 during yesterday's session. Additionally, SAFM is set to log its best month since February 2021, and string together its third-straight monthly win. 

Despite this, short-term options traders have rarely been more put-biased. This is per SAFM's Schaeffer's put/call open interest ratio (SOIR) of 5.91, which sits higher than all but 1% of readings from the past year. 

The equity could be ripe for upgrades, too. Of the three covering Sanderson Farms, all condsider it a "hold."

Nonetheless, SAFM still provides a very low valuation at a price-earnings ratio of 5.69 and a price-sales ratio of 0.85, with its forward price-earnings ratio at 5.05. Sanderson Farms stock also offers a dividend yield of 0.83% with a forward dividend of $1.76. In addition, the poultry business comes with a low level of risk due to its excellent balance sheet. Sanderson Farms currently has just $20.69 million in total debt, while holding $829.12 million in cash on its balance sheet.

Sanderson Farms has already managed to increase their trailing 12-month revenues and net income by 17.2% and 89.9%, respectively, compared to what it reported for fiscal 2021. SAFM is also expected to end fiscal 2022 with 31.3% revenue growth and 134.2% earnings growth. However, the poultry company’s fiscal 2023 estimates indicate a 35.9% decrease in earnings and a 3.5% decrease in revenues. Still, Sanderson Farms stock remains an incredibly undervalued stock by most valuation metrics.


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