Scandinavian Tobacco Group A/S (CPH:STG), might not be a large cap stock, but it saw significant share price movement during recent months on the CPSE, rising to highs of kr.153 and falling to the lows of kr.130. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Scandinavian Tobacco Group's current trading price of kr.140 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Scandinavian Tobacco Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Scandinavian Tobacco Group worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Scandinavian Tobacco Group’s ratio of 9.23x is trading slightly below its industry peers’ ratio of 10.79x, which means if you buy Scandinavian Tobacco Group today, you’d be paying a reasonable price for it. And if you believe that Scandinavian Tobacco Group should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. In addition to this, it seems like Scandinavian Tobacco Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Scandinavian Tobacco Group look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a relatively muted profit growth of 9.7% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Scandinavian Tobacco Group, at least in the short term.
What this means for you:
Are you a shareholder? STG’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at STG? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on STG, now may not be the most advantageous time to buy, given it is trading around industry price multiples. 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.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Scandinavian Tobacco Group has 1 warning sign we think you should be aware of.
If you are no longer interested in Scandinavian Tobacco Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.