£5,000 invested in this FTSE 250 company over the past 5 years returns over £24,000

Five years ago, the FTSE 250It’s down about 6%. But one stock in particular has managed to surpass the popularity of Alphabets, an appleagain Microsoft.

It’s up 393%, enough to turn a £5,000 investment in 2020 into something worth more than £24,000. And the company is not involved in artificial intelligence (AI) or even technology.

What is a stock?

The stock in question is Premier Foods (LSE:PFD) – your manufacturer of both branded and non-branded food products. And there are three reasons why the stock has risen so much over the past five years.

Another reason is that income has grown. Since 2020, sales have increased by 35% in the company’s branded food division and 16% in its non-branded segment, resulting in revenue growth of approximately 33%.

On top of this, margins have expanded. This is partly due to branded sales growing faster than unbranded, but also as a result of Premier Foods reducing its long-term debt from £500m to £326m.

Premier Foods Revenue & Operating Margin 2020-24

Created in TradingView

The reason why the stock is now trading at higher prices. The company made a loss in 2019, which complicates the price-to-earnings (P/E) ratio. But on a price-to-book (P/B) basis, the stock went from 0.3 to 1.12.

So the rest of the investors’ profits are driven by the underlying business and the stock market. The big question for investors though, is whether or not it can continue.

Outlook

I think it is difficult to see how Premier Foods shares can perform over the next five years as they have done over the past five years. Most of the catalysts that drove the stock forward appear to have worn off.

The company’s balance sheet is stronger than in 2020 and the stock is trading at its highest P/B multiple in a decade. As a result, I don’t think any of this can continue to propel stocks forward.

Premier Foods Total Debt and P/B Ratio 2020-24

Created in TradingView

Despite this, there are still encouraging signs. In its latest update, Premier Foods reported that revenue continues to rise, with management indicating that consumers are trading up branded products.

As a result, margins are still expanding, resulting in the title’s profits continuing to grow faster than sales. This is masked to some extent at the expense of depreciation, but the signs are very good.

Investors would be unwise to ignore the risk of consumers who trade continuously – in new products. But for now, the move away from off-label products continues to help Premier Foods.

A missed opportunity?

To me, Premier Foods is something of a missed opportunity. Back in 2020, I expected a strengthening balance sheet leading to higher margins and a return to profitability – but I didn’t invest.

That was a big miss on my part. However, with the share price up 393% over the past five years, trying to correct the mistake by buying the stock now may be a mistake.

I expect Premier Foods to be a strong business going forward. But some of the biggest causes of the stock have finished their lessons, and I think there are better opportunities for me now.