In the first of this two-part series on Campbell Soup Company's (NYSE:CPB) valuation, I discussed the challenges facing both the consumer packaged goods (CPG) industry and Campbell in particular. I ended with the following chart of the company and a few close competitors, comparing them on the basis of enterprise value to projected one-year EBITDA:

CPB EV to EBITDA (Forward) Chart

CPB EV to EBITDA (Forward) data by YCharts.

Being relatively cheap isn't necessarily the same as being undervalued

I concluded that at first glance, Campbell Soup Company looks relatively cheap versus competitors when judged by price-to-earnings measures like EV to EBITDA.

Campbell's market pricing is getting disconnected from peers like Kraft Heinz and Mondelez, though they're also struggling with the types of sweeping industry change described in part one of this series.

Now, if we switch to an asset-based valuation measure, Campbell Soup Company doesn't look as attractive: 

CPB Price to Book Value Chart

CPB Price to Book Value data by YCharts.

The company's price-to-book value (i.e., total assets less liabilities) of nearly 10 is unexpected and sobering. On this oft-consulted measure, a value of 1 or less typically indicates an undervalued security. And for reference, the components of the Consumer Staples Select Sector Fund (an ETF based on a sector index of S&P 500 stocks, of which Campbell Soup is a member) show an average price to book of 5.2.

Bowl of chicken bone broth on wood table surrounded by scallions and other fresh ingredients.

Campbell's purchase of Pacific Foods of Oregon will allow it to offer more trendy soups, like chicken bone broth. Image source: Getty Images.

Why would Campbell exhibit such a high reading? One of the phenomena that can skew a price-to-book ratio is consistently static earnings. Over time, if a company can't grow net income (and related cash flows), its balance sheet won't expand, either. And unfortunately, the narrative of Campbell's revenue and profits has been one of stagnation, going back 10 -- even 20 -- years:

 Metric 2017 2007 1997
Net sales $7.9 billion $7.4 billion $6.6 billion
Earnings before interest and taxes $1.4 billion $1.2 billion $1.1 billion
Net income $0.9 billion $0.9 billion $0.7 billion

Data source: Campbell Soup SEC filings. 

Both sales and net income have increased at a compound annual growth rate (CAGR) of roughly 1% since 1997 (the company's fiscal year ends July 30). That's simply anemic! Not surprisingly, book value of $1.4 billion at the end of 1997 has increased to just $1.6 billion at the end of the 2017 fiscal year. There's no expansion in assets (net of liabilities) to keep pace with a steadily, if slightly, increasing stock price, thus inflating the price-to-book ratio.

The steep price-to-book metric clues investors in to the fact that it's been a very long while since Campbell Soup Company has created sustained financial growth. Taken in context with the forward EV-to-EBITDA ratio, the organization may be valued relatively lower than its peers, but it's probably a stretch to call it undervalued. So, Campbell shares still aren't cheap -- the market has simply adjusted stock price against both recent and longer-term history.

Of course, while it's no value investment, Campbell Soup Company's fortunes could still turn around. Management has instituted several changes over the last several quarters, from product innovation to building out a digital e-commerce business unit to compete in a changing retail landscape. 

It's possible for the stock to buck its long malaise. But before buying, look for an appreciable, consistent jump in revenue and earnings, or some other major catalyst that would indicate that Campbell Soup has finally stopped merely treading water.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.