Today we're going to take a look at the well-established Constellation Brands, Inc. (NYSE:STZ). The company's stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$258 at one point, and dropping to the lows of US$234. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Constellation Brands' current trading price of US$258 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Constellation Brands's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

What's The Opportunity In Constellation Brands?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We've used the price-to-earnings ratio in this instance because there's not enough visibility to forecast its cash flows. The stock's ratio of 30.23x is currently trading slightly above its industry peers' ratio of 25.67x, which means if you buy Constellation Brands today, you'd be paying a relatively sensible price for it. And if you believe that Constellation Brands should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like Constellation Brands's share price is quite stable, which could mean there may be less chances to buy low in the future now that it's trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Constellation Brands?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. Constellation Brands' earnings over the next few years are expected to increase by 79%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in STZ's positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven't considered today, such as the track record of its management team. Have these factors changed since the last time you looked at STZ? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you've been keeping an eye on STZ, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for STZ, which means it's worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Constellation Brands at this point in time. At Simply Wall St, we found 1 warning sign for Constellation Brands and we think they deserve your attention.

If you are no longer interested in Constellation Brands, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.