Is this growth stock a buy despite 2.9% sales fall?

The Motley Fool
Unilever sign
Unilever sign

Private label consumer goods specialist McBride(LSE: MCB) has released an AGM trading update. It shows that the company is on track to meet full-year expectations. However, with sales falling by 2.9%, is it worth buying right now?


McBride's first quarter of the year has been encouraging. That's at least partly because its new strategy is continuing to have a positive impact on margins and costs. This should help to offset weakness in the company's sales, with McBride's revenues falling by 2.9% on a constant currency basis.

The management team believes that it's performing well in spite of the uncertain macroeconomic outlook it faces. Consumer confidence across the UK and Europe could be hurt by Brexit and this may cause demand for consumer goods to come under pressure. Therefore, McBride's sales could continue to fall, which will make the implementation of its new strategy to improve margins all the more crucial to its financial performance.

McBride offers a relatively wide margin of safety at the present time. For example, it trades on a price-to-earnings growth (PEG) ratio of just 0.9. This is largely down to its impressive earnings growth outlook, with McBride forecast to increase its bottom line by 17% in the current year. Although there's scope for this figure to fall if the macroeconomic outlook deteriorates, McBride's low valuation means that its share price may still perform relatively well.

Lower risk

Of course, other consumer goods companies such as Unilever(LSE: ULVR) offer greater diversity and lower risk than McBride. Unilever has greater geographical diversity than McBride and is more focused on the emerging world. This provides it with less exposure to the challenges of Brexit and means that it will be able to benefit from the expected growth in consumer spending across China, India and the developing world.

Unilever also sells a wide range of products, which helps to reduce its risk profile yet further. Clearly, its near-term growth outlook isn't as impressive as McBride's, with Unilever forecast to increase its bottom line by 9% in the next financial year. Similarly, its PEG ratio of 2.1 is much higher than McBride's. This indicates that Unilever has less capital growth potential than McBride.

However, where Unilever has greater appeal is with regards to its risk/reward profile. As mentioned, it comes with lower risk and given the uncertain outlook for Europe in particular, higher levels of diversity could prove to be a useful ally in the months ahead. Furthermore, Unilever has greater income appeal than McBride. Unilever yields 3.1% from a dividend which is covered 1.5 times by profit, while McBride has a yield of 2.3%, covered 2.9 times by profit.

Although McBride has considerable long-term appeal, Unilever seems to be the preferred option right now. However, another stock could prove to be an even better buy.

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Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.