Is It Time To Consider Buying Smurfit Kappa Group Plc (ISE:SK3)?

While Smurfit Kappa Group Plc (ISE:SK3) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the ISE over the last few months, increasing to €36.77 at one point, and dropping to the lows of €32.02. 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 Smurfit Kappa Group's current trading price of €33.86 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Smurfit Kappa Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Smurfit Kappa Group

What Is Smurfit Kappa 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 Smurfit Kappa Group’s ratio of 9.23x is trading slightly below its industry peers’ ratio of 12.22x, which means if you buy Smurfit Kappa Group today, you’d be paying a decent price for it. And if you believe Smurfit Kappa 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, it seems like Smurfit Kappa Group’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Smurfit Kappa Group look like?

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. However, with a negative profit growth of -0.03% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Smurfit Kappa Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, SK3 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 SK3, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SK3 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 SK3 should the price fluctuate below the industry PE ratio.

If you'd like to know more about Smurfit Kappa Group as a business, it's important to be aware of any risks it's facing. For example, Smurfit Kappa Group has 3 warning signs (and 1 which can't be ignored) we think you should know about.

If you are no longer interested in Smurfit Kappa 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.