ASX consumer discretionary stock Retail Food Group Ltd (ASX: RFG) has experienced a tough 12 months.
The company owns, operates, and franchises restaurants primarily located in Australia.
Familiar names for consumers include Donut King, Michel's Patisserie, Brumby's Bakery, Gloria Jean's Coffees, Pizza Capers, and Crust Gourmet Pizza.
A year ago, shares were trading at roughly $2.64 each.
Yesterday, shares closed at $1.32 each.
Many investors keep a close eye on stocks that are moving upward. But it appears valuations now place this ASX consumer discretionary stock as a value buy.
Image source: Getty Images
What has pushed the price lower?
The company reported mixed results in key financial indicators for the previous financial year.
For FY25, the company reported statutory net profit after tax (NPAT) of $14.9 million, down 357.3% on pcp.
This was attributed primarily due to non-cash impairments related to Brumby's Bakery. It was also due to restructuring costs to refocus operations on higher-growth brands like Beefy's Pies and Firehouse Subs.
Meanwhile, underlying revenue was up 13.6% on pcp for this consumer discretionary company.
Looking forward, RFG is shifting its growth strategy to focus on Beefy's Pies and the newly introduced Firehouse Subs, backed by a 20-year agreement with Restaurant Brands International to open 165 outlets in Australia, starting mid-FY26.
Finally, less than a month ago, the company announced the resignation of Chief Executive Officer Matt Marshall.
He is replaced by non-executive Chairman Peter George as Executive Chairman while the Board conducts a global search for a new CEO.
Bell Potter's view
Following the FY25 results, broker Bell Potter released updated guidance on this consumer discretionary stock.
Bell Potter reduced its price target by 28% to $2.60 per share due to earnings downgrades and a lowered target P/E multiple.
Despite this, it still sees the valuation as relatively undemanding, supported by growth in core brands, a return to QSR growth, the successful Beefy's acquisition, and long-term potential in the FHS opportunity, albeit with near-term risks.
With Bell Potter's updated price target of $2.60 per share, this still indicates an impressive upside of 96.97%.
It's worth noting the broker has lowered its NPAT forecasts for RFG by 4.3% in FY26, 11.4% in FY27, and 13.4% in FY28.
Foolish Takeaway
RFG's earnings are expected to decline in the short term, mainly due to upfront investment costs for launching Firehouse Subs and ongoing restructuring (including a potential Brumby's divestment).
As a result, investor sentiment may be cautious, and the share price for this consumer discretionary stock could remain under pressure until the benefits of the new strategy begin to show.
