• UNFI stock continues to fall despite another solid earnings report. 
• Analysts are likely suspecting that demand for the company’s offerings will decline as budgets tighten 
• Based purely on fundamental metrics, UNFI may deserve a spot on your watch list.  

Frequently in life, timing is everything. That’s the thought that comes to mind when I look at the earnings report from United Natural Foods (NYSE:UNFI).  

The distributor of natural, organic, specialty, produce, and conventional grocery and non-food products in the United States and Canada delivered a solid earnings report. The company beat on both the top and bottom lines. And both numbers were up 7% compared to the prior year.  

But that isn’t doing much to stop the slide in UNFI stock. The stock is down 3% the morning after delivering earnings. And the stock is now down 26% for the year.  

The stock is also not getting much help from the analyst community. Despite the results, several analysts lowered their price target for UNFI stock. And three of those four estimates (as of this writing) are well below the $50.29 consensus price target.  

In this article, I’ll look at what may be driving the price lower and if UNFI deserves a spot on your recovery watch list.  

Fighting a Battle on Two Fronts 

As MarketBeat’s Jea Yu pointed out after the company’s last earnings report, the company continues to do an excellent job of managing the effects of double-digit inflation in food prices. United Natural Foods cites its Fuel the Future strategy as being the catalyst. The program is creating operational efficiencies for the company such as its leadership in automation technology.  

And as chief executive officer Sandy Douglas pointed out, a study by McKinsey projects U.S. grocery sales to grow at an average annual rate of 4.1% through 2026. That number includes independent grocers that make up a considerable chunk of the company’s business.  

But the market is forward looking. And right now, that future is cloudy. Analysts are warning of an earnings recession that may last well into 2023. And while inflation is showing signs of leveling off (not falling), food prices are still uncomfortably high.  

And with the Federal Reserve pledging to continue raising interest rates into 2023, it’s fair to wonder how much of the company's $140 billion addressable market will be affected. That’s a lot of uncertainty for shareholders to wade through.  

Why UNFI Stock May Present a Buying Opportunity 

At this time, investors must be extremely selective about the stocks they choose to have in their portfolio. With that in mind, UNFI stock has about as solid of a fundamental case as a company can make.  

• The company’s price-to-earnings (P/E) ratio is 8.84. That’s far lower than the industry average of 14.43. And UNFI stock is cheaper than 84% of the companies in the same industry.  
• The company paid off $174 million of debt in the quarter and lowered its leverage by 0.4x in the fiscal year. The company’s Current Ratio of 1.26 was already better than 83% of the industry.  
• The company is projected to post revenue growth in the low single digits over the next five years; earnings during that time are projected to grow in the high single digits. 
• The company authorized a $200 million share repurchase program. 

From the outside looking in, the company appears to be doing a respectable job of controlling what it can control. But the broader economy is not something it can control. And without a dividend to pay you while you wait for growth, investing in UNFI stock may not be a risk worth taking. But if you’re a risk-tolerant investor with time to wait, buying a stock that’s near its 52-week low may be an opportunity worth investing in.