Central Garden & Pet Company CENT is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 18.43X, which positions it at a premium compared with the industry’s average of 13.05X. The stock is also trading above its median P/E level of 16.62X, observed in the past year. The valuation indicates that Central Garden & Pet is overvalued.

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The stock’s rapid ascent might have contributed to its elevated P/E multiple. Shares of Central Garden & Pet, which is a prominent player in the pet and garden space, have gained 10.5% in the past month, outpacing the industry and the S&P 500's growth of 2.7% and 2.6%, respectively.

Central Garden & Pet Past Month Performance

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Such a premium valuation often signals high investor expectations for growth. While this may concern some value-focused investors, it is essential to consider whether the fundamentals justify the price. Now the question arises, is Central Garden & Pet a buy, hold or sell at its current valuation?

Decoding Tailwinds Behind CENT Stock’s Performance

Central Garden & Pet’s cost and Simplicity program, aimed at optimizing operational efficiencies, is enhancing productivity while reducing costs. Through strategic consolidation of facilities, integration of operations and centralization of logistics, CENT has streamlined its processes, making the company more agile and competitive. 

Another key factor supporting CENT’s momentum is its strong focus on eCommerce and digital capabilities. The company has made targeted investments in digital infrastructure, improving content, search engine optimization and inventory management, which has led to increased conversion rates and market share. 

CENT's growth strategy is also supported by its innovation pipeline and strategic acquisitions. The company is actively investing in new product development, particularly in high-demand areas like pet consumables and sustainable garden solutions. These innovations not only meet evolving consumer preferences but also open up new revenue streams.

Are Headwinds Enough to Derail CENT’s Momentum?

CENT faced pressure in the fourth quarter of fiscal 2024 with year-over-year declines in both revenues and earnings. Challenges in the Pet and Garden segments significantly contributed to this performance. Moreover, the company has been grappling with unfavorable weather conditions and a softer consumer spending environment.

The Pet segment is under pressure, with sales declining 10% and organic net sales dropping 14% in the fourth quarter of fiscal 2024. The durable pet products category experienced double-digit declines, due to post-pandemic normalization in pet ownership and reduced discretionary spending. The segment has been impacted by SKU rationalization and competition from low-cost imports. Looking ahead, the company expects durable products to decline further by mid-single digits in fiscal 2025, which could exacerbate challenges in maintaining its position in the segment.

The Garden segment also weighed on the company’s performance, with sales down 12% and organic net sales declining 11% in the fiscal fourth quarter, primarily due to lapping the extra week. However, there were some positive developments, including improved foot traffic in home centers and strong performance in grass seed, which partially mitigated the negative impacts.

CENT faces significant exposure to tariffs with approximately 60% of its imports sourced from China. While this is a reduction from previous years, tariffs still make up about 5% of CENT’s cost of goods sold. Any escalation in geopolitical tensions or changes in trade policies could further increase costs, particularly for durable pet products that are already facing weak demand.

CENT’s Consensus Estimates Showing Downtrend

Reflecting the negative sentiment around CENT, the Zacks Consensus Estimate for fiscal 2025 and 2026 has seen downward revisions. In the past 30 days, analysts have lowered estimates for the current fiscal by 7.5% to $2.22 and for the next fiscal by 9.3% to $2.33 per share.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

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Should You Buy, Hold or Sell CENT Stock?

Central Garden & Pet is currently trading at a premium, which indicates that the stock is overvalued. Despite the recent surge, the company faces significant challenges. Its Pet and Garden segments are underperforming with declines in sales and profitability. Given the downward revisions in earnings estimates and the ongoing headwinds, CENT's elevated valuation appears unsustainable. As a result, the current outlook points toward potential downside risks, reinforcing CENT’s Zacks Rank #4 (Sell).

Look Beyond CENT Stock

Ingredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INGR delivered a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current-financial year’s earnings indicates growth of 12.4% from the year-ago reported number.

Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT delivered a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 228.6%, respectively, from the prior-year reported levels.

US Foods Holding Corp. USFD engages in marketing, sale and distribution of fresh, frozen and dry food and non-food products to foodservice customers in the United States. It currently carries a Zacks Rank #2. USFD delivered an earnings surprise of 3.7% in the last reported quarter.

The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.

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Central Garden & Pet Company (CENT) : Free Stock Analysis Report

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