What Is Scandinavian Tobacco Group A/S's (CPH:STG) Share Price Doing?

While Scandinavian Tobacco Group A/S (CPH:STG) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the CPSE. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Scandinavian Tobacco Group’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Scandinavian Tobacco Group

What's The Opportunity In Scandinavian Tobacco Group?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.28x is currently trading slightly below its industry peers’ ratio of 11.18x, which means if you buy Scandinavian Tobacco Group today, you’d be paying a reasonable price for it. And if you believe Scandinavian Tobacco Group should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, Scandinavian Tobacco Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -2.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Scandinavian Tobacco Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, STG appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on STG, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on STG for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on STG should the price fluctuate below the industry PE ratio.

If you'd like to know more about Scandinavian Tobacco Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Scandinavian Tobacco Group (of which 1 doesn't sit too well with us!) you should know about.

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.