Hershey Co (NYSE:HSY)’s earnings yield is 3.3%, below the market average of 5.1% signifying that the company is overvalued compared to the rest of the market.
Moreover, Hershey Co (NYSE:HSY) trades at a price-to-book ratio of 19, significantly above that of its closest peer, Mondelez International Inc (NASDAQ:MDLZ), which trades at a price-to-book ratio of 1.7. After outperforming the S&P 500 by 10% so far this year, it maybe time to give Hershey Co (NYSE:HSY) the cold shoulder.
Overbought tobacco
Lastly, cyclically defensive company, Reynolds American, Inc. (NYSE:RAI). As a tobacco company, Reynolds American, Inc. (NYSE:RAI) is traditionally a company that offers the best returns in times of uncertainty. However, right now Reynolds American, Inc. (NYSE:RAI) is trading at a 59% premium to its five-year historic average trailing-12 month P/E ratio. (Reynolds’ five-year average P/E is 14.5 compared to the current ratio of 23).
Elsewhere, Reynolds American, Inc. (NYSE:RAI) trades at a price-to-sales ratio of 3.5, which is 25% above the tobacco sector average of 2.8. The company also trades at one of the highest forward valuations in the group. Trading at a forward P/E of 15.2, Reynolds American, Inc. (NYSE:RAI) is the most expensive in the tobacco sector, beating the likes of larger peers, Philip Morris International Inc. (NYSE:PM) and Altria Group Inc (NYSE:MO).
Like sector peer, Lorillard, Reynolds American, Inc. (NYSE:RAI) is facing uncertainty over the FDA’s position on menthol cigarettes. Around 30% of Reynolds’ revenue comes from its menthol ranges so this could be a big headache for the company. And with the FDA ramping up their rhetoric on the issue, it could be time to abandon Reynolds in favor of a cheaper peer.
Foolish summary
All in all, it is difficult to predict if the market is either overvalued or undervalued. However, these three companies all look to be overvalued based on their historic average valuations. Moreover, all three companies are in the historically expensive consumer-defensive sector, a group which has been sought after during the past few years as a defense from uncertainty.
Overall it would be wise to avoid these companies and maybe look for some value elsewhere.
The article These Stocks Are Expensive According to Several Metrics originally appeared on Fool.com and is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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