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Avery Dennison Corporation (NYSE:AVY): Is It A Good Long Term Opportunity?

Daisy Mock

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The latest earnings release Avery Dennison Corporation’s (NYSE:AVY) announced in December 2018 suggested that the business experienced a large tailwind, leading to a high double-digit earnings growth of 66%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Avery Dennison’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.

See our latest analysis for Avery Dennison

Market analysts’ consensus outlook for this coming year seems positive, with earnings rising by a robust 20%. This growth seems to continue into the following year with rates arriving at double digit 26% compared to today’s earnings, and finally hitting US$645m by 2022.

NYSE:AVY Future Profit February 20th 19

Although it is helpful to understand the growth rate each year relative to today’s level, it may be more insightful to evaluate the rate at which the business is rising or falling every year, on average. The pro of this approach is that we can get a better picture of the direction of Avery Dennison’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I’ve inserted a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 10%. This means, we can expect Avery Dennison will grow its earnings by 10% every year for the next couple of years.

Next Steps:

For Avery Dennison, there are three relevant aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is AVY worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AVY is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AVY? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.