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At US$112, Is Yum! Brands, Inc. (NYSE:YUM) Worth Looking At Closely?

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Today we're going to take a look at the well-established Yum! Brands, Inc. (NYSE:YUM). 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$126 at one point, and dropping to the lows of US$109. 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 Yum! Brands' current trading price of US$112 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 Yum! Brands’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Yum! Brands

What's the opportunity in Yum! Brands?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 6.08% above my intrinsic value, which means if you buy Yum! Brands today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $105.18, then there isn’t really any room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Yum! Brands’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Yum! Brands generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Yum! Brands, it is expected to deliver a relatively unexciting earnings growth of 0.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? YUM’s future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on YUM, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook 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 Yum! Brands at this point in time. For example, Yum! Brands has 3 warning signs (and 2 which can't be ignored) we think you should know about.

If you are no longer interested in Yum! 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.

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