Raj Oil Mills Limited (NSEI:RAJOIL), a INR₹181.79M small-cap, operates in the consumer staples sector, which has been a consistent performer over time due to its robust consumer demand throughout economic cycles. Consumer staple analysts are forecasting for the entire industry, a strong double-digit growth of 17.33% in the upcoming year . Below, I will examine the sector growth prospects, and also determine whether Raj Oil Mills is a laggard or leader relative to its consumer staples sector peers. Check out our latest analysis for Raj Oil Mills

What’s the catalyst for Raj Oil Mills’s sector growth?

Disruption from consumers is becoming more prominent than that of industry competitors. Many consumers now prefer to buy whole, raw ingredients and prepare more of their meals at home. Additionally, new companies with unique business models have emerged in the wake of this healthier food trend. Over the past year, the industry saw growth in the twenties, beating the Indian market growth of 12.90%. Raj Oil Mills lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Raj Oil Mills may be trading cheaper than its peers.

Is Raj Oil Mills and the sector relatively cheap?

The food product industry is trading at a PE ratio of 24x, in-line with the Indian stock market PE of 28x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 12.29% compared to the market’s 9.78%, potentially illustrative of past tailwinds. Since Raj Oil Mills’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Raj Oil Mills’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Raj Oil Mills has been a food product industry laggard in the past year. If your initial investment thesis is around the growth prospects of Raj Oil Mills, there are other food product companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Raj Oil Mills fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If Raj Oil Mills has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its food product peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Raj Oil Mills’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Raj Oil Mills’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer staples stocks instead? Use our free playform to see my list of over 100 other consumer staples companies trading on the market.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.