Davide Campari-Milano S.p.A. (BIT:CPR): Can Growth Justify Its August Share Price?

Davide Campari-Milano S.p.A. (BIT:CPR) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of €8.06 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

Check out our latest analysis for Davide Campari-Milano

What can we expect from CPR in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Davide Campari-Milano. The consensus forecast from 19 analysts is buoyant with earnings per share estimated to surge from current levels of €0.237 to €0.327 over the next three years. This indicates an estimated earnings growth rate of 10% per year, on average, which illustrates an optimistic outlook in the near term.

Can CPR’s share price be justified by its earnings growth?

Davide Campari-Milano is looking rather expensive based on its price-to-earnings (PE) ratio of 34x. This illustrates that Davide Campari-Milano is overvalued compared to the IT market average ratio of 15.44x , and overvalued based on current earnings compared to the Beverage industry average of 23.47x .

BIT:CPR Price Estimation Relative to Market, August 13th 2019
BIT:CPR Price Estimation Relative to Market, August 13th 2019

We understand CPR seems to be overvalued based on its current earnings, compared to its industry peers. But, to properly examine the value of a high-growth stock such as Davide Campari-Milano, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 34x and expected year-on-year earnings growth of 10% give Davide Campari-Milano a quite high PEG ratio of 3.33x. This means that, when we account for Davide Campari-Milano’s growth, the stock can be viewed as overvalued , based on fundamental analysis.

What this means for you:

CPR’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: Are CPR’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 CPR 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 CPR’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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.