Retail Food Group fails to stimulate investor appetite

The Donut King owner's hefty PE may lead analysts to downgrade the stock unless its earnings, released in 2 weeks time, surprises on the upside.

Retail Food Group’s (RFG) profit growth guidance did little to assuage concerns about the company’s valuation with the stock falling 1% to $4.15 this afternoon.

The food franchise owner is forecasting a 13% increase to full-year earnings, which would put its bottom line at $34.2 million for the year to end June – right on the consensus estimate.

However, this puts the stock on a lofty price-earnings multiple of close to 15 times when its five-year average is 10.8 times.

Unless the group, which owns brands like Donut King and Brumby’s, issues an outlook ahead of the 20% net profit growth that analysts have pencilled in for the current financial year, brokers will find it increasingly hard to justify keeping the stock on a “buy” despite the group’s strong track record.

Retail Food Group will issue its 2012-13 result on August 22. The stock is part of the Uncapped 100.

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