Is Smurfit Kappa Group plc’s (ISE:SK3) Growth Strong Enough To Justify Its June Share Price?

Smurfit Kappa Group plc (ISE:SK3) closed yesterday at €34.9, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing SK3’s expected growth over the next few years. See our latest analysis for Smurfit Kappa Group

What can we expect from Smurfit Kappa Group in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Smurfit Kappa Group. The consensus forecast from 7 analysts is certainly positive with earnings per share estimated to rise from today’s level of €1.772 to €2.702 over the next three years. This indicates an estimated earnings growth rate of 13.64% per year, on average, which indicates a solid future in the near term.

Is SK3’s share price justifiable by its earnings growth?

SK3 is trading at price-to-earnings (PE) ratio of 19.7x, which suggests that Smurfit Kappa Group is overvalued based on current earnings compared to the packaging industry average of 17.19x , and overvalued compared to the IE market average ratio of 15.08x .

ISE:SK3 PE PEG Gauge June 25th 18
ISE:SK3 PE PEG Gauge June 25th 18

We understand SK3 seems to be overvalued based on its current earnings, compared to its industry peers. However, since Smurfit Kappa Group is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 19.7x and expected year-on-year earnings growth of 13.64% give Smurfit Kappa Group a higher PEG ratio of 1.44x. Based on this growth, Smurfit Kappa Group’s stock can be considered slightly overvalued , based on its fundamentals.

What this means for you:

SK3’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Is SK3’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has SK3 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SK3’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.