Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B), which is in the forestry business, and is based in Sweden, saw a significant share price rise of over 20% in the past couple of months on the OM. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Svenska Cellulosa Aktiebolaget’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is Svenska Cellulosa Aktiebolaget worth?
Svenska Cellulosa Aktiebolaget is currently overpriced based on my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Svenska Cellulosa Aktiebolaget’s ratio of 20.93x is above its peer average of 11.64x, which suggests the stock is overvalued compared to the Forestry industry. Furthermore, Svenska Cellulosa Aktiebolaget’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will Svenska Cellulosa Aktiebolaget generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Svenska Cellulosa Aktiebolaget, it is expected to deliver a relatively unexciting earnings growth of 7.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? SCA B’s future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe SCA B should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SCA B for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Svenska Cellulosa Aktiebolaget. You can find everything you need to know about Svenska Cellulosa Aktiebolaget in the latest infographic research report. If you are no longer interested in Svenska Cellulosa Aktiebolaget, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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